Despite regulatory hurdles, India continues to be among the preferred destinations for FDI due to the country's high economic growth, with both Mumbai and Delhi being touted as among the cities likely to produce the next Microsoft or Google, a survey said.
According to the '9th Annual European Attractiveness Survey' by Ernst & Young, India will rank fifth among the most attractive destinations for European firms within the next three years, mainly on account of India's perceived specialisation as a hub for low cost outsourcing business.
"Foreign investors are not deterred by current regulatory issues to invest in India... India's perceived specialisation as a low-cost business process outsourcing (BPO) hub continues to appeal the investors across the globe," the report said.
As per the E&Y report, a huge number of respondents felt that India would be the home to the next big brand name in the IT sector.
"Eight per cent of global respondents named Mumbai and 4 per cent named New Delhi as the best cities to produce the next 'Microsoft' or 'Google'," it said.
Around 800 executives from top-level global firms participated in the survey.
As per the survey, 31 percent of the participants each felt that Western Europe and China would be among the attractive markets for investing within three years.
"India ranked at fifth position, with 17 per cent of respondents believing the country to be a profitable economy for expansion of business," E&Y said.
Experts have been warning against regulatory hurdles and a slowdown in the reform process, including failure to liberalise the retail and insurance sectors further, as likely irritants in attracting FDI.
Foreign Direct Investments into the country had fallen to USD 19.43 billion (Rs 88,520 crore) in 2010-11 as against USD 25.83 billion (Rs 12.31 lakh crore) in the previous fiscal, a decline of 25 percent.
"India is undergoing a transition in terms of investor perception of its market potential, bolstered by economic growth projected to surpass 8 per cent annually," the report said.
The Indian economy had expanded by 8.5 percent in 2010-11, up from 8 percent in the previous fiscal.
The Reserve Bank, in its annual monetary policy, said that growth is likely to slow down a bit but still clock around 8 percent this fiscal.
The survey also found that Asian countries find Europe to be a good investment destination, with India ranking 11th among the top investors globally to the continent.