>Emerging As One of the Top Destinations for FDI (MORGAN STANLEY)

In this week’s EcoView, our spotlight focuses on the recent trend and outlook for FDI inflows into India. With the revival in global business confidence and risk appetite, FDI inflows into India have rebounded sharply over the last six months. Indeed, if the current trend is maintained, we expect FDI inflows in 2009 to reach the high of US$41.2 billion received in 2008. Read the detailed note to see the analysis on trend in India’s rank relative to other emerging markets, which sectors are attracting FDI inflows, and the outlook for FDI inflows.

Elsewhere in this week’s EcoView, we summarize the key macro developments including:
(a) Road infrastructure development – taking stock of progress: According to the monthly data released by NHAI, there has been some pickup in project awards since February 2009 compared to the prior period when not a single project was awarded between August 2008 and January 2009.

(b) What does the rise in oil prices mean? With oil prices trending higher again, we have updated our analysis on the sensitivity to increasing oil prices on three fronts: subsidy burden, external balance and inflation.

(c) Assembly elections – good news for Congress Party: Congress leads in the assembly elections in all three states – Maharashtra, Haryana and Arunachal Pradesh. The Congress and its alliance parties were the incumbents in these states.

(d) New monthly WPI series to be launched: This will replace the current practice of releasing the index on a weekly basis. The proposed new monthly series will include a wider and more updated basket compared with the current WPI weekly series.

KEY POINTS
• Quick revival in FDI inflows into India: After a brief period of slowdown post the emergence of
global credit crisis in 2H08, FDI inflows have increased sharply – though they remain far away
from peak levels seen in 1Q08. If the current trend is maintained, we expect FDI inflows in 2009 to reach close to the high of US$41 billion received in 2008.

• India is steadily improving its rank compared to other EMs: India’s share in global FDI flows
improved significantly to 2.4% in 2008 from 1.3% in 2007 and 0.3% in 2000. From being ranked 36th in the world on FDI inflows in 2000, India has improved its rank to 20th in 2007. Indeed, if we measure FDI inflows in terms of percentage of GDP, India is already receiving more inflows than Brazil, China and the US.

• Can FDI into India be higher than that into China? Over the last three years, India considerably bridged the gap with China. Yet in 1H2009, India received less than half of the FDI inflows into China. Indeed, with India gradually catching up to China on GDP growth, it would not be surprising to see India reach very close to China on FDI inflows over the next 4-5 years.

To see the full report: INDIA ECOVIEW