FDI inflows May 2011

Foreign direct investment seems to have made a smart recovery after a year of continuous fall. Latest data released by the department of industrial policy and promotion (DIPP) shows FDI inflows more than doubled to $4.66 billion in May 2011, compared to $2.21 billion a year ago. This is the highest monthly inflow in 39 months. In February 2008, just before the global financial crisis, inflows were estimated at $5.67 billion, according to Bloomberg data. This is the second month in a row when FDI inflows have surged though there is a growing feeling within the country that policy paralysis is affecting decision-making and impacting investor sentiment. During April and May 2011-12, FDI inflows have shot up 77% to $7.79 billion, as against $4.39 billion during April-May last year. So, what is responsible for the change? The government said that it is the result of a series of steps initiated by it over the last few months such as consolidation of the guidelines and liberalizing the norms for sectors such as seeds and limited liability partnerships. Investment consultants said it is partly because of improved sentiments overseas as companies from the US and Europe are no longer as worried as they were immediately after the global financial crisis. Besides, the growth is over a small base so things look all the more better. But everyone is now arguing that this year is going be a good year as far as FDI is concerned. For example, the proposed tie-up between BP and Reliance could see an immediate inflow of over $7 billion, with total investment over the years adding up to $20 billion. Similarly, Vodafone’s purchase of Essar’s stake, at around $5 billion, is also an indicator of continuing investor confidence in India. The approvals given to Posco (where total investment over the years is estimated at $12 billion) and the Cairn-Vedanta deal (around $9 billion) would only make that number swell.