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Commonwealth Games: Best and worst of times for India to attract foreign capital

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Still, Harish Bijoor, a brand consultant based in Bangalore, worries that the public sector's mismanagement of the games may have tarnished the image of India as an investment opportunity.

"People outside this country will not know how discrete these two [sectors] are," says Mr. Bijoor.

Matt Robinson, an economist based in Australia for Moody's Analytics, has voiced similar concerns in his reports: "The negative publicity could deter foreign investment and give multinational businesses considering expanding in India reason to think twice."

These are the best of times and the worst of times for India's ability to attract foreign capital.

Stock is up, but foreign direct investment is down

On the one hand, Mumbai's (Bombay's) SENSEX stock exchange is reaching all-time highs as a flood of cheap money from developed nations seeks out the high growth rates of developing economies like India.

But foreign direct investment – or the opening of factories and other business ventures on Indian soil – is down by nearly a quarter to $12.6 billion in the first seven months of 2010. The decline cannot be blamed entirely on the global economy: China's FDI jumped 21 percent to $58.4 billion over the same period.

Why the schizophrenia? Prasad points to the poor reputation of India's government versus the attractiveness of its private sector.

To open a factory anywhere requires a lot of interaction with the government: securing land rights, acquiring permits, and paying taxes. In India, that means dealing with a country ranked 133 out of 181 by the World Bank for ease of doing business.

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