FDI Accounting in India and China: A Need for Harmonization

Abstract

The objective o f this pap er is to initiate discussions on
standardizing the m ethod fo r m easuring Foreign Direct
Investment (FDI) across countries. It is im portant to use
consistent m ethod so that there is a fa ith fu l representation
o f a country's investment clim ate an d the inform ation is
relevant fo r the purpose o f foreign investors. India an d
China measures Foreign Direct Investm ent (FDI) using
two different methods. India measures FDI on the basis o f
equity investments, whereas China includes certain items
which do not strictly fa ll under the purview o f FDI.
Inclusion o f items other than equity increases the reported
FDI in China. It is presum ed that overall higher reported
FDI m akes China a p p ear m ore attractive than India. Our
findings suggest that once adjustm ents fo r the definitions
are m ade, difference betw een the FDI in Ch ina an d India
decreases substantially.