FDI inflows to India down 29 percent in 2012: UNCTAD

Low investor sentiment, a slowing economy and high interest and inflation rates have dented India's image as a preferred foreign investment option. The country received 29 percent less FDI inflows in 2012, the UN Conference on Trade and Development (UNCTAD) said Wednesday.

The UNCTAD World Investment Report 2013 said India received FDI inflows of $26 billion in 2012 - down 29 percent from $36.19 billion in 2011.

"The Indian economy experienced its slowest growth in a decade in 2012, and also struggled with risks related to high inflation. As a result, investor confidence was affected and FDI inflows to India declined significantly," the report said.

However, the report said the country's FDI prospects were improving as a result of opening up of the economy and creation of manufacturing zones for Japanese and Korean companies.

"Inflows into the services sector are likely to grow, thanks to ongoing efforts to open up key economic areas such as retailing. Flows to manufacturing are expected as a number of countries, including Japan and Republic of Korea, establish country or industry-specific industrial zones in the Delhi-Mumbai industrial corridor," the report said.

The FDI outflows from India declined 30.92 percent at $8.6 billion from $12.45 billion due to shrinking value of cross-border mergers and acquisitions (M&As) by Indian companies. However, India led in investing in least developed economies (LDCs) with an investment of about $4.38 billion in 2012.

"In terms of share of greenfield projects in LDCs in 2012, companies from India were responsible for 20 percent of the total value. In addition to their scale, Indian investments in LDCs have been diversified geographically and sectorally," the report said.

India has invested in large-scale projects in Mozambique, Bangladesh and Madagascar.

Indian investments in Africa have been focused at the east and southern regions of the continent and they are not limited to just to large-scale investments in extractive and heavy industries, but also extended to smaller ones in pharmaceutical and healthcare.