India remains an attractive investment destination despite some slowdown in foreign direct investment (FDI) last year, Planning Commission Deputy Chairman Montek Singh Ahluwalia said here on Saturday.
“There is some weakening in the last few months in the FDI... Due to the financial crisis in 2008 and 2009, many investors' decisions were postponed...,” Mr. Ahluwalia told the global CEOs who have gathered at the Alpine resort for the 41st World Economic Forum (WEF) meeting.
India remained an attractive destination for investment, he said, adding, “We welcome long-term investments.''
During January-November, 2010, India's FDI inflows declined by 26 per cent to $18.9 billion from $25.5 billion in the same period last year.
Mr. Ahluwalia said India needed FDI to bridge the rising current account deficit (CAD). “We have CAD. We need to finance our deficit.”
The country's CAD, representing the difference of inflows and outflows of foreign exchange, barring capital movements, surged by 72 per cent to $15.8 billion in the July-September quarter over $9.2 billion in the same period last year due to higher imports.
The Reserve Bank of India said in a recent report, “...the external sector needs to be monitored closely. The economy is well poised to absorb a higher current account deficit for a couple of years but this cannot remain a persisting trend.”
It said the widening of CAD is a result of factors like lower growth in services receipts, reflecting uneven pace of global recovery.
Besides, there has been a significant rise in imports relative to exports — reflecting a steep rise in international crude oil prices — and moderation in FDI inflows reportedly because of environment sensitive policies, land acquisition issues and lack of quality infrastructure.
Capital inflows
It added that although larger net capital inflows were absorbed in financing higher CAD, the composition of capital flows poses sustainability risks.
Higher capital inflows were due to big investments in capital markets by foreign funds, external commercial borrowings by India Inc and external assistance.
