FDI inflow in India to get adversely affected by scams

The recent string of scams and corruption in India can render a severe blow to the flow of FDI in the nation. Convoluted systems, reluctancy in acquiring the permits in the right manner and the desire to avail unfair advantage are the prime reasons that stir up corruption in the country and discourage the FDI inflow.

Key findings

According to JLL reports, around Rs 36 400 crore have gone astray, only because corruption has been on rise between October 2011 to September 2012. Rising corruption has ranked the nation in the Corruption Perception Index of Transparency International. Sloppy utilization of resources and distorted distribution of wealth are the two primary detrimental effects of corruption in the economy.

According to market experts, more than 83% of the major companies in Indian economy support the fact that the growing spate of scams in the nation will cast down the flow of foreign investments in the country. Scams and corruption are mainly fuelled by the lack of corporate entities to procure licenses and approvals in the apt manner.

On the basis of a survey conducted between foreign and Indian multinationals in the UK and US, having an annual income ranging between Rs 5000-Rs 10000 crore, market experts conclude that if the growing corruption in India is not curbed, it may lead to a dearth of FDI in the country. The respondents include from various departments namely legal and compliance, internal audit and finance, risk and vigilance management from financial service and banking institutions, media, manufacturing, technology and entertainment sectors.

FDI in real estate

Foreign Direct Investment was welcomed in India in 2005 and since then it has been one of the most aspiring factors for the growth in capital inflow in the real estate sector. The looming upticks in real estate activities and the subsequent upgradation in the growth scale demand for greater capital inflows, which are only met by the FDI.

FDI inflow in the sector mainly concentrates in the commercial, residential and large-scale integrated township advancement in major metropolitan cities like Mumbai, Bangalore and Delhi.

Key Trends

Project specific investment: Investments in real estate depend on the type of project or Special Purpose Vehicle(SPV) that proposes elf-liquidating exit chances when it comes to residential real estate unit.

Flow of FDI in real estate: The real estate sector has attracted USD 2844 and USD 1127 millions in the year 2009-10 and 2010-11. However, the real estate sector of the nation witnesses a foreign direct investment of USD 3443 millions in the year 2011-12.

Handpicked Geographies: Private equity players, investing in real estate mainly lay emphasis on Indian metropolitan cities since such regions offer transparency along with increased potential for returns.

Though firms have shown an increasing awareness towards the growing risk imposed by corruption and have taken significant anti-corruption compliance initiatives, however, a lot is yet to be done. According to professionals of Ernst and Young, firms will have to make sure that high level of transparency exists in business conduct, and measures must be taken to resist the willingness to pay bribes. Curbing growing scams will only aid the flow of FDI in the nation significantly.