New Delhi, Oct 16 (IANS) India in 2005 received more foreign capital inflows than ever before and also started emerging as a large investor abroad but the growth in such cross-border transactions does not reflect its potential, says Unctad.
The latest World Investment Report of the United Nations Conference on Trade and Development (Unctad), released globally Monday, says India attracted 21 percent more foreign investment at $7 billion in 2005.
'But considering the high performance of the Indian economy since 2003 and the improving policy environment, the growth of foreign direct investment does not yet reflect India's potential for attracting foreign investment,' it says.
'Yet, despite disadvantages and bottlenecks, such as poor infrastructure, the long-term prospects for the country in attracting foreign direct investment are promising,' the report adds.
The 340-page report - that focuses on the changing role of developing countries and transition economies this year - says India, like other countries in the Asian region - continued to open up its economy in 2005.
Overseas investments in retail trade were allowed for single-brands and foreign investment was permitted in industries like radio broadcasting and construction, even as the investment cap in the telecommunications sector was raised, it says.
The report also says that despite Indian trans-national companies being few and smaller as compared with those in East and Southeast Asia, its increased economic openness is driving firms to go global.
'In several industries - software and IT services, pharmaceuticals and biotech, hotels and hospitality, auto and other branded products - they have diversified their operations and investments across the world,' it says.
'But it is in software and IT services, the most dynamic component of the Indian economy, where the main trans-national companies are found. They are the pioneers in software offshore outsourcing of software and IT-enabled services.'
The report also mentions specific companies like Dr Reddy's Labs, Infosys Technologies, Ranbaxy, Tata Consultancy Services and Wipro and Oil and Natural Gas Corp to indicate the globalisation of Indian firms.
'Flows from South, East and Southeast Asia declined by 11 percent. Though China saw a six-fold increase, the other giant in this region, India, experienced a decline after an almost two-fold increase the year before,' the report says.
'The Government of India has not established a proactive policy for outward foreign direct investment as the Government of China has done, but leading Indian companies have already invested abroad intensively.'
According to the report, the US is the main destination for overseas investments by Indian companies followed by Russia, Mauritius and Sudan, even as Canada and Australia are emerging as destinations for steel and chemicals companies.
'While most of the investments in Russia and Sudan have been in oil exploration, those to the US have been mainly in IT services and pharmaceuticals,' the report said, adding that Indian firms have begun investing abroad much earlier than expected.
Giving an international perspective, the report says foreign direct investment inflows globally rose 29 percent to $916 billion in 2005 - but the growth was higher in developed countries than in de