14.12.10

FDI inflows - October 2010

The declining trend in foreign direct investment (FDI) inflows intensified further in October with funds coming into the country through this route falling 40% to $1.39 billion compared to $2.33 billion a year ago. Cumulatively, for April-October 2010, the decline is in the order of over 25% and is down to $14.91 billion, compared to $19.95 billion in the corresponding period last year. While a slowdown in investment by multinational companies due to problems in the home market is one reason, government officials said there were other factors too. “A lot of companies which were hoping to get into the retail business or increase their stake in insurance ventures are still waiting for the required policy changes. But nothing has moved in the last few months, so the falling graph may continue for a while,” a commerce and industry ministry official said.
Another official said that due to the proposed changes in tax laws—which will limit
benefits to developers of special economic zones as also to units that are set up in these areas—the pace of investment has slowed down. Just last week, finance minister Pranab Mukherjee had expressed concern over FDI inflows. Some observers also said that too much should not be read into the numbers as the big names of international business community had a presence in India.
Within the overall scheme of things, the current fall is on account of equity investments, the largest component of FDI inflows. The silver lining is that companies that are already in India are not taking away profits in
the form of dividends to their parents. Instead, they are reinvesting the funds into Indian ventures to expand capacity for meeting the rising demand.
The fall in FDI inflows comes at a time when foreign institutional investors are pouring into Indian shares and bonds. According to Sebi data, despite the recent share sale, so far in 2010, FIIs have pumped in $28.7 billion into India, compared to $17.5 billion last year.
The rise in portfolio investment has put pressure on the Indian rupee, which has gained against the US dollar and reduced the competitiveness of Indian exports.

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