For the first time in more than one year, foreign direct investment (FDI) crossed the $3-billion mark on a monthly basis. Total FDI inflows amounted to $3,476 million in July, up 55% from $2,247 million a year ago, latest data from the RBI monthly bulletin show.
More heartening though is the fact that cumulative inflows from April-July, despite being lower at $10.5 billion compared with $12.3 billion in the year-ago period, are marginally higher than inflows through the portfolio route, which amounted to $10.35 billion over the same period.
This, according to experts, points to foreign investors’ faith in the resilience of the Indian economy, which has weathered the recessionary headwinds better than most countries and is set once again to move to a high growth trajectory. FDI inflows are inherently more stable than the portfolio money that is invested into shares and considered more volatile.
"Inflows overall are looking up since sentiment in the India story is bullish considering the new government’s stress on infrastructure, an improvement in industrial production and the growth in exports in absolute terms since April. We believe going ahead inflows will continue to remain buoyant,” said Yes Bank chief economist Shubhada Rao.
India fares better than neighbours
"WE are bullish on capital inflows through all routes such as FDI as well as the portfolio route including QIPs. As far as FDI is concerned, it is less volatile than foreign portfolio flows. So we might see it pick up steadily over a period of time as investors here are betting on the country’s longterm growth story,” said Sidharth Sanyal, economist at Edelweiss Securities.
However, about $1.5 billion is through acquisition of shares of Indian companies by foreigners, which technically does not qualify as greenfield investments. Though this is a secondary investment, it indicates the prospects and promise that India holds for overseas investors, said an economist with a research firm, who declined to be named.
Notably, India has also in some way done better than her neighbours China and Pakistan, which witnessed a dip in FDI inflows. In July, China saw FDI plunge 35.7% ($5.36 billion), though in absolute terms, it annually receives far higher FDI than India.
The government has scaled down its FDI target for FY10 by $5billion to $30 billion. This works out to average monthly inflows of about $2.5billion. The current trend for the four-month period indicates growth in line with target.
FDI inflow into the country came down as the global recession deepened in the months after the Lehman collapse in September last year. It hit a low of $1billion in November’08 as most global investors faced a severe credit crunch.
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