NEW DELHI - Small Indian towns score over metros and big cities when it comes to being the destination of choice of foreign investors.

Foreign investors prefer smaller Indian towns to big cities for setting up manufacturing facilities, thus establishing linkages with suburban and rural regions of the country, a government-sponsored study has found.

“A significant proportion of FDI-enabled manufacturing plants are located in Class-3 cities,” the study done by National Council of Applied Economic Research (NCAER) said.

The study covered 1,273 plants of 401 FDI-enabled manufacturing companies located in 294 cities of which 54 per cent were in small cities.

According to classification by Population Census-2001, Class-3 cities are towns with a population of less than five lakhs.

“It is assumed that these cities and towns are sub-urban and closer to the rural areas of the country,” it said.

The study, sponsored by the Department of Industrial Policy and Promotion (DIPP) found that about half of the total output, value addition and wages paid in the FDI manufacturing firms originate in small towns.

These investments are in sectors like non-metallic mineral products, building and construction parts, mining of iron ores, textiles and growing and processing of crops.

When it comes to value-added products, sectors like minerals, tobacco products and footwear are predominant.

Small towns also contributed two-fifth of the market capitalization (the stock value of a firm) of multi-national companies in India and contributed more than 50 per cent of the workforce.

“Sectors providing a relatively high share of employment in Class-3 cities include transport equipment, growing and processing of crops, construction parts, textiles and non-metallic mineral products,” the study said.

It found that the FDI-enabled manufacturing units paid higher wage than the domestic firms.

Within the FDI firms, the wages were relatively high in sectors such as footwear, medical appliances, electricity distribution and building of construction parts.

The NCAER study was based on data between 2001 and 2006 and for some parameters between 2006 and 2008.

India received a cumulative Foreign Direct Investment (FDI) of $127.46 billion since 1991, according to the official data.                (PTI)