12.9.09

FDI inflows up 55% in July



The Indian economy could well be on its way out of the woods, if the money pumped into the country by foreigners is anything to go by. For the first time in more than one year, foreign direct investment 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 month ago, shows the latest data from RBI monthly bulletin that was released. 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 a 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 the 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.However, around $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 neighbours China and Pakistan, which saw a dip in FDI inflows. In July, China’s FDI plunged by 35.7% ($5.36 billion), though in absolute terms, it annually receives much higher FDI than India. The government has scaled down its FDI target for FY10 by $5 billion to $30 billion. This works out to average monthly inflows of around $2.5 billion. The current trend indicates growth in line with target. FDI inflow in India came down as the global recession deepened in the months after the Lehman collapse last year. It hit a low of $1 billion in November 2008. But things started looking up after April this year, when inflows started picking up on improved global liquidity conditions.

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