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Reuters/Kim Kyung-Hoon
Looking ahead.
ON TOP

India attracted more FDI than China in 2015

By Madhura Karnik & Zheping Huang

India was the top destination for foreign direct investment (FDI) in 2015. Asia’s third largest economy raced past China—which was at the top for many years—with $63 billion worth of foreign investment, according to fDi Intelligence (pdf), a unit of the Financial Times group.

An increase in the number of investment projects in coal and power in India helped the country surpass China. The number of projects in the country rose 8% to 697 in 2015 over the previous year. This is still lower than China’s (789 projects) which indicates that the value of investments was much higher in India.

India is one of the fastest growing major economies in the world and is considered to be a bright spot by international agencies, including the International Monetary Fund. Prime minister Narendra Modi is also pushing to increase manufacturing in the country.

China, on the other hand, is battling slow economic growth, overcapacity, and high debt. Beijing is adding to the debt to ease the slowdown. In  February, the country announced a massive layoff of 1.8 million workers to downsize its coal and steel industries. Because of a weaker yuan and a slowing economy, an estimated $1 trillion moved out of the country in 2015, the highest in the past decade.

“India replaced China as the top destination for FDI by capital investment following a year of high-value project announcements, specifically across the coal, oil and natural gas and renewable energy sectors,” the fDi report said.

A couple of high-profile projects were announced during the year. For instance, SunEdison, the Missouri-based power company, said in January 2015 that it will invest $4 billion to build a solar panel factory in India—the biggest in the country. Foxconn, the Taiwanese manufacturer which makes iPhones, has also said it will invest $5 billion over the next five years in a manufacturing unit in the western Indian state of Maharashtra.

Here’s how investment projects have grown in some countries in the Asia-Pacific region:

Meanwhile, Gujarat received the highest FDI in the country. Of the total inflows to India and China, the western state received 10%, with $12.4 billion in investments. The home state of Modi, Gujarat was ranked the 14th most popular state for investment in India and China in 2011. After four years, the state is now at the top.

Even though India has reached the top, there remain issues on the ground level that need to be remedied to attract more inflows. For instance, important pro-industry laws like the goods and services tax and the land acquisition bill have not been passed. Additionally, the government’s unclear stance on issues like retrospective taxation concerns foreign firms.