July 13, 2007
News Release 07-073
Contact: Peg O'Laughlin, 202-205-1819

India is a fast-growing destination for global flows of foreign direct investment (FDI), according to a new staff research study by the U.S. International Trade Commission (ITC) Office of Industries.

Competitive Conditions for Foreign Direct Investment in India looks at FDI flows into India by country and by industry and examines India's investment climate through chapters on India's investment environment, special economic zones, investment-related regulations, and international agreements. Two chapters present FDI case studies in India's automotive and pharmaceutical industries.

The research study was prepared by ITC staff. The findings in the study are those of the author and do not necessarily reflect the views of the U.S. International Trade Commission or any of the Commissioners.

Principal findings regarding FDI in India include:

• Net FDI in India was valued at $4.7 billion in the 2005-06 Indian fiscal year and more than tripled to $15.7 billion in the 2006-07 fiscal year.
• By country, the largest investors in India are Mauritius, the United States, and the United Kingdom. By industry, the largest destinations for FDI are electrical equipment (including computer software and electronics), services, telecommunications, and transportation.
• India offers both positive and negative incentives for foreign investors. Positives include strong economic growth leading to increased buying power by the middle class, low wages compared to OECD countries, and an educated work force. Negatives include inadequate infrastructure, labor shortages in key jobs, and bureaucratic delays in obtaining necessary permits and licenses.
• India's Special Economic Zones (SEZs) attract foreign investment by providing tax incentives, assistance with bureaucratic and administrative problems, and access to reliable infrastructure. Investment-related regulations outside the SEZs have been increasingly liberalized since 1991, with important improvements in intellectual property regulation.
• U.S., EU, and Japanese automakers and auto component manufacturers all have significant investments in India. Most FDI in the automotive industry has been focused on sales to the domestic market, but more foreign investors are now producing autos and components in India for export.
• India's 2005 changes to its patent law have motivated substantial new FDI in the pharmaceutical industry, but global pharmaceutical firms are waiting to see how the new law is interpreted before further expanding product patenting and commercialization activities in India.

Competitive Conditions for Foreign Direct Investment in India (Staff Research Study No. 30, USITC publication 3931, July 2007) is available on the ITC's Internet site at /publications/docs/pubs/332/pub3931.pdf.