Firms see India 3rd most favoured destination, U.N. report

By Manoj Kumar

NEW DELHI (Reuters) - Major global companies consider India their third most favoured destination after China and the United States, a U.N. report said on Thursday, and investment inflows could increase by more than 20 percent both this year and next.

Foreign direct investment (FDI) flows into India leapt 30 percent to nearly $32 billion in 2011, though held back by slow pace of reforms, it still remains a long way down the league table of FDI recipients.

China drew $124 billion last year, while Brazil attracted nearly $67 billion and Russia $53 billion..

"The FDI inflows into India can go up by 20-25 percent this year and by about 20 percent next year, if the present trend continues," said Nagesh Kumar, Chief Economist, United Nations Economic and Social Commission for Asia and the Pacific, while releasing the UNCTAD's World Investment Report 2012.

Some 179 global companies - from the manufacturing, services and primary sectors - were surveyed between February and May, on their favoured investment destinations for 2012 to 2014.

Kumar said FDI growth seems to be keeping its momentum in 2012, referring to furniture maker IKEA and Coca Cola's (KO.N) recent announcements to pump nearly $5 billion combined into India over the long term.

Though India's economic growth slowed to 5.3 percent in the March quarter, its slowest in nine years, its trends still compared favorably, Kumar said.

"Compared to many other places, India is doing better in terms of growth," he said, adding global investors were looking at the long term prospects and wide market in Asia's third largest economy.

The report said worldwide FDI flows exceeded the pre-financial crisis average in 2011, reaching around $1.5 trillion, despite turmoil in the global economy, and is projected around $1.6 trillion this year.

Global companies are sitting on hefty cash reserves and waiting for the euro zone situation to stabilise before investing, he said.

Earlier this year India allowed full foreign ownership of single brand retailers, although late last year it backtracked on a plan to allow in foreign supermarkets.

Many investors are hoping it revives that plan soon, after Prime Minister Manmohan Singh recently took over the finance portfolio and talked about the need to address problems in the insurance and mutual fund industries, as well as taxation.

Kumar said corporate investors look at long term prospects and recent controversies over retroactive tax proposals broadly aimed at taxing companies like Vodafone (VOD.L), or proposed general anti-tax avoidance rules (GAAR) would not hurt India's prospects as an investment destination.

(Editing by Simon Cameron-Moore)