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The race for FDI

India sticks to reform

India's dismal record for attracting foreign direct investment is a sore point among Indian government officials. But things might go their way this year, according to the FDI Confidence Index, an annual survey of executives of the world's largest companies conducted by consultancy AT Kearney. This places India third in its list of top 25 FDI destinations for 2004, behind China and the US.

In recent years, FDI in India has averaged about $4 billion a year. "Foreign partners have begun hiking investments in Indian ventures. The level of interest from new investors has risen over the past year," says Ashok Mittal, co-head of investment banking at HSBC, an adviser to Telekom Malaysia (which is buying into Indian telecoms company Idea) and Indian-Singaporean combine Bharti-Changi, a likely bidder for the Mumbai-Delhi airport development project.

The outsourcing dynamic

The growing trend of multinationals outsourcing to India or using it as a global manufacturing hub is expected to drive FDI. IBM paid $129 million in April to buy Daksh eServices, an Indian business process outsourcing (BPO) company. Flextronics acquired Hughes Software Systems for $282 million in June. "Multinationals that want a quick entry into the IT services market are looking to buy," says Pramit Jhaveri, head of Citi's Investment Bank, which advised IBM and Flextronics.

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