India has been ranked as the best country for attractiveness to foreign investors among 110 countries. The same list ranks China at 65th position and the U.S. at the 50th. The same index, ranked India at the sixth position and while Hong Kong was number one.
The ranking is based on an index for baseline profitability which shows how the value of the principal and the return will change depending only on where the investment is made.
Index for baseline profitability (BPI 2015):
The index was created by Daniel Altman, an Adjunct Professor at New York University’s Stern School of Business.
This index assumes that three factors affect the ultimate success of a foreign investment:
- how much the value of an asset grows-India ranked 29
- the preservation of that value while the asset is owned-ranked 31
- the ease of repatriation of proceeds from selling the asset-ranked 3rd
The combined parameters for each of these factors into a summary statistic gave India rank one
Reasons for more attractiveness according to Altman: Growth forecasts up, perceptions of corruption down, and investors better protected following the election of a government led by Prime Minister Narendra Modi.
Corruption affects returns a lot in the form of bribes. India’s corruption perception is coming down as per the Transparency International’s Corruption Perceptions Index, a measure for the perceived levels of public-sector corruption worldwide. In 2014, the country was at the 85th position out of 175 countries as compared to its ranking of 94 out of 177 in 2013.
Returns are also affected by the level of investor protection. The BPI measures this parameter by using an index of investor protection compiled by the World Bank, in which India ranks favourably.