FDI in INDIA & CHINA

FDI inflows comparison between

India & China By JAVAIDDAR

11109818(A25)Lpu punjab 2011-2013

contents

IntroductionCross country comparisonIntroduction to FDIAnalysis Recommendations ConclusionReferences

Introduction

India and china emerging global players:

High economic growth ratesRapid raising share in worldLarge inflows of FDIEngines of growth in demand of commodities Positive demographics

POPULATION

GDP COMPARISION

“GDP Growth 2000 to 2050”

Source: Goldmann Sachs: The Path to 2050

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

[2003 bn US Dollars]

-8-

CHINA GDP PER CAPITA

Source: Goldmann Sachs: The Path to 2050-8-

INDIA GDP PER CAPITA

Source: Goldmann Sachs: The Path to 2050-8-

CHINA EXPORTS

Source: Goldmann Sachs: The Path to 2050

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

[2003 bn US Dollars]

GermanyBrazil

JapanRussia

-8-

INDIA EXPORTS

-8-

“SECTOR-WISE BREAK-UP OF ECONOMIES

CHINA & INDIA”

0%

50%

100%

SectorwiseBreak up ofChina GDP

SectorwiseBreak up of

ChinaPopulation

SectorwiseBreak up ofIndia GDP

SectorwiseBreak up of

IndiaPopulation

ServicesIndustryAgriculture

India’s 54% of population is engaged in Agriculture but only accounts for 17% of GDP

-12-

Comparing India and China’s Growth Stories

Indicators India ChinaPolitical System

Multi-party Democracy

One-party authoritarian rule

Speed of Growth

Economic reforms started in 1991. Average 6% growth rate in past two decades.

Economic reforms started in 1978. Average 9.5% growth rate in past two decades.

Areas of Specialization

Rising power in software, design, services.

Dominant in mass manufacturing, electronics and heavy industrial plants

Comparing India and China’s Growth Stories

Indicators India ChinaGini index (standard measure of inequality)

36.8

47.0 (up 10 points from 15

yrs ago)

Foreign Direct Investment

6.8% (up from 0.3% in 2004)

17.8%

Future Areas of growth

R&D, bio-technology, high-value IT enabled services, agro-based industry

IT business, services and continued manufacturing

Investment done by citizens and government of one country (home country) in another country (host country).

Foreign Investment

through

Foreign Direct Investments

Foreign Institutional

Investors

FOREIGN INVESTMENT

WHY FDI?

Economic Growth

Trade

Employment and skill levels

Technology diffusion and knowledge

transfer

Linkages and spillover to domestic firms

WHY FDI?

FDI INFLOWS

TOP INVESTING COUNTRIES IN INDIA

53%

11%

9%

7%

5%4% 4% 3%

2% 2% Mauritius

Singapore

USA

UK

Netherlands

Japan

Cyprus

Germany

UAE

France

SECTOR WISE DISTRIBUTION IN INDIA

31%

13%

12%

11%

10%

6%

6%4% 4%

3%

Services Sector

Computer Software & hardware

Telecommunications

Housing & real Estate

Construction Activities

Power

Automobile Industry

Metallurgical Industries

Petroleum & Natural Gas

Chemicals

FDI-GDP CORRELATION

FDI-GDP CORRELATION

Why china is best FDI destination?

T he main reasons are:

Rapid economic growth since reform period Infrastructure availabilityAbundance of labor and its low costRapid expansion of china's domestic market Role of overseas ChineseIncreased integration with the worldLabor lawsPolitical system and stability

Why India lags behind china in FDI attraction?

T he main reasons are:

Political structureInfrastructure gapMonetary and fiscal policiesProductivity BeurocracyAvailability of capitalTransport costsCorruption

“INFRASTRUCTURE * INVESTMENTS”

* Transport, Communication & Power

Source: China Statistical Yearbook, RBI, Morgan Stanley Research-15-

OIL AND GAS

b l

HOW CAN INDIA ATTRACT MORE FDI?

Political restructuring Promote agro based export industries Remove corruption Increase infrastructure investment Accelerate privatization efforts Improve educational fitness Remove FDI hurdles Provide monetary and fiscal benefits

HOW CAN CHINA RETAIN FDI ATTRACT ION?

Restructure the economy Further improve infrastructure Develop impartial and effective court system Consultations with foreign investors community Strengthen the financial system Reduce delays in approving FDI projects

Conclusion

Source-http://www.indexmundi.com/g/g.aspx?v=66&c=in&l=en retrieved on 30th Oct 2008

ORGANISED VS UNORGANISED RETAIL

India

China

Indonesia

Thailand

Malaysia

Taiwan

US

0 10 20 30 40 50 60 70 80 90 100

OrganisedUnorganised

Conclusion

Source-http://www.indexmundi.com/g/g.aspx?v=66&c=in&l=en retrieved on 30th Oct 2008

FDI IN RETAIL (INDIA)

FDI can be a powerful catalyst to spur competition in the retail industry.

It can bring about:• Supply Chain Improvement• Investment in Technology• Manpower and Skill development• Efficient Small and Medium Scale Industries• Increase in exports

Conclusion

Source-http://www.indexmundi.com/g/g.aspx?v=66&c=in&l=en retrieved on 30th Oct 2008

BENEFITS TO AGRICULTURE

• Investment into warehouse and cold storage chain will result in significant efficiency on supply chain.

• Farmers benefited through direct marketing and contract farming programme.

• Improves farm production through modern techniques.

• Increasing availability of low interest credit for farmers.

Conclusion

Source-http://www.indexmundi.com/g/g.aspx?v=66&c=in&l=en retrieved on 30th Oct 2008

China in a stronger position compared to India?

Can INDIA surpass CHINA?

Is CHINA experiencing an INVESTMENT BUBBLE?

Should INDIA compete with CHINA?

WHAT DO YOU CONCLUDE?

SPECIAL THANKS TO MANDEEP SIR

REFERENCES

www.McKinsey Quarterly.com

Article 1: China’s and India’s financial systems: A barrier to growth

Article 2: Why believe in India

Article 3: China and India: The race to growth

Article 4: Making foreign investment work for China

World Fact Book

http://www.tradingeconomics.com/china/indicators

http://www.tradingeconomics.com/india/indicators

http://www.ndtv.com/convergence/ndtv/video/video.aspx?id=42447

http://www.ser.tcu.edu/2003-Pro/SEP2003%20Yallapragada%20Paruchuri%2027-