INDIA BUSINESS WORLD - May 2005
THE MONTH THAT WAS

FDI RISES 3-FOLD AGAINST $4.7-B APPROVALS

After a 10-year lull when less than a third of the approved amount was actually being invested, in the last three years, FDI realisations have exceeded the approvals. So during 2003-04, actual FDI investment was thrice the approved amount of $4.7 billion.

In contrast, till 1997 only 30% of the approved was actually invested in ground by the foreign investors. This figure gradually increased to 71.7% during 2001 and there has been an explosion after that.
According to figures provided by Phdcci, FDI realisations jumped to 191.1% in financial year 2002, 236.8% in FY 2003 and over 300% in FY 2004. So, against cumulative approvals of around $15 billion in three years between 2002 and 2004, actual foreign investment were close to $33 billion. What this means is that till 2001 while approved amount overstated the actual FDI flow in India, since 2002 they are grossly understating it.

It seems MNCs in India were earlier hoarding FDI approvals till 2001 but now they seem to be in a hurry to exhaust their approvals to take advantage of the current boom in the Indian economy. So it seems once they exhaust out their accumulated approvals, there could be a quantum jump in FDI approvals. The growth could be similar to the one seen in case of FII inflows which jumped many times to reach almost $10 billion last calendar.

Despite an improvement in recent years, close to 50% of the FDI approved between now and 1991, is still to be realised. The chamber blames it on policy barriers and administrative hassles and delays, especially at the state level.

The Phdcci data shows that FDI inflows, which stood at $97 million in 1990-91, reached a peak of $3,557 million in 1997-98. In 2000-01, the FDI inflows were $4,029 million, which rose to $4,675 million in 2003-04. In the first 10 months of 2004-05, FDI inflows were $4,233 million. Out of $4,675 million in 2003-04, the share of equity investment was $2,387 million, while reinvested earnings were placed at $1,800 million and inter-company debt transactions of FDI entities (other capital) at $488 million.