CHAPTER-18 before India did and thereby attracted
CHAPTER-18 A COMPARATIVE ANALYSIS OF INDIA’s AND CHINA’s FDI FLOWA Comparative Analysis ofIndia’s and China’s FDI Flow has been summarized in the following article. Therise in the industrial sectors of India and China are regarded as one of thebiggest factors which led to the huge amount of FDI inflows in both the countries.Recent studies on FDI in China have come up with interesting perspectives.
Normally, the huge flows of FDI into China are projected as positive indicatorsfor the Chinese economy; some credit rating agencies have even suggested thatFDI is a reflection of that country’s creditworthiness. A paper by YashengHuang, a don at MIT’s Sloan School, proposes an amazing thesis — FDI into Chinais an indication of economic weakness.ComparativeAnalysis of India’s and China’s FDI Flow at a GlanceChina stands on a higherplane than India in terms of economy.
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India’s per capita income is USD 440 andChina’s per capita income is USD 990. The population residing below the povertyline in China is 3 percent whereas in India, the population below poverty lineis 30 to 40 percent. China offered investment opportunities to the foreignplayers much before India did and thereby attracted a raging FDI Inflows in thecountry. China received USD 52.
7 billion of FDI inflows in the year 2002 while,India received USD 4.67 billion of FDI inflows in the same year.IndiaLagging Behind China in FDI InflowsAccording to a new WorldBank report, India lags behind China in terms of attracting FDI Inflows in thecountry, in spite of having high-tech industries and adept workforce. The maincause behind this drawback is that India is not skilled enough to adopt thetechnological advancements at a fast pace. FDI Inflows only contributes to 0.8percent of India’s GDP as compared to 3.5 percent of the same in China.
India’shigh-tech industries claim for 2.3 percent of Gross Domestic Product whereasthe high-tech industries in China contributes to around 7.9 percent in the GDPof the country. India did not opened much of economic activities to the foreignplayers as compared to other developing nations except liberalizing trade andforeign investments. Advantagesof India and China in terms of FDI InflowsThe majority of the foreigninvestors prefer China over India for investment opportunities as China has abigger market size than India, offers easy accessibility to export market,government incentives, developed infrastructure, cost-effectiveness, andmacro-economic climate. India on the other hand has skilled and efficientmanpower, talented management system, rule of law, transparent system of work,cultural affinity and regulatory environment CHAPTER-19 CONCLUSION The increased flow of FDI in a country hasgiven a major boost to the country’s economy. FDI hasprovided better access to technologies for the local economy. FDI has lead to indirect productivity gainsthrough spillovers.
Multinational firms have increased the degree ofcompetition in host-country markets which will force existing inefficient firmsto invest more in physical or human capital. Service sector has been the mostsought after sector in India forForeign Direct Investments. India, with its skilled labor and manpower has thepotential to overtake China as the most preferred destination for ForeignInvestments Hence measures must be taken in order to ensure that the flow ofFDI in our country continues to grow. In terms of development, there is a generalagreement of the potential benefits of Foreign Direct Investment.
Therelationship between GDP Growth and the increase of the relationship betweenFDI and GDP (FDI/GDP (%)) can be clearly established. A country competitivenesswhich may attract Foreign Direct Investment from Transnational Corporations isdetermined by Comparative Factors, Economic Stability and Strong Institutions,the later taking in more importance year on year. For these reasons, countrieshave to implement active policies that can bring Economic Stability and thatcan build an appropriate investment environment for the country.