UNCTAD’s World Investment Report 2005 has ranked India as the second most attractive global business destination. China was ranked first. The study, which covered the world’s leading corporations and investment experts, states that India will witness increased foreign direct investment (FDI) flows in coming times, especially in steel, telecommunications, infrastructure and finance sectors. The end of textile trade quotas should also help the country attract FDI in this area.

Interestingly, a separate study from Deutsche Bank has concluded that although China is the most attractive FDI destination, the average return on assets is better in India. This analysis of the Indian and Chinese economies also revealed that India has an edge because of its institutional infrastructure and corporate governance practices, even though the Chinese economy is much more integrated with the global economy and has higher GDP growth. China has relied on industry for its economic development and India on services. China has superior physical infrastructure, but India enjoys higher availability of skilled workers.

Meanwhile, in 2005-06, India may, for the very first time, attract foreign direct investment (FDI) of about US$ 5 billion through the equity component alone. Consequently, the overall FDI may comfortably cross US$ 7 billion. FDI inflow includes equity investments and reinvested earnings, and usually, the equity component of FDI inflow in India has been around 50 to 55% of the total inflow.