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Fundas |
FDI INFLOWS |
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Foreign investment in the country's industrial and
other firms has surged to nearly $22 billion during the first
six months of the year, with the momentum of flows continuing
in the first quarter of 2008-09. The government said that export
growth will be consistent at 30% in October and FDI would touch
$35 billion this fiscal as anticipated earlier. Commerce and
Industry minister Kamal Nath estimated that FDI inflows would
meet the target of $35 billion during the current year.
After record flows of $11 billion during the last quarter of
2007-08, foreign direct investment (FDI) during April-June 2008
has topped $10 billion - providing comfort to fiscal and policy
managers considering that foreign portfolio investors have been
major sellers since the beginning of the year. They have sold
stocks worth $6.5 billion this year. What is most encouraging
this time is that bulks of the inflows have been channelised
into greenfield projects. Indications are the FDI flows would
be enhanced with an estimated investment of $5 billion by Dai-chi
Sankyo in Delhi-based pharma company, Ranbaxy. Our policy makers
have placed FDI on top of their preferred hierarchy of capital
flows considering the benefits it provides in the form of job
generation and technology transfer.
FDI inflows have been on the rise in the past three years. In
2007-08, inflows touched $32 billion. However, a sizeable portion
is reinvested earnings by companies, i.e., money invested in
acquisition of existing shares or private equity inflows. However,
the FDI figures for the latest quarter don’t include reinvested
earnings. Also, of the $10.1-billion FDI, only $2.3 billion
is towards share acquisition. Even private equity flows, also
included in the FDI numbers, are believed to have slowed significantly
in the wake of the turmoil in the global credit market.
However, what could be adding to the discomfort of policy makers
are the sectors that the money is flowing into. Nearly 15% of
the FDI inflows during April-May have gone to the real estate
and housing sector. Services and infrastructure are the other
sectors witness to huge inflows. The FDI figures seem to indicate
that the country's long-term growth story is strong. However,
rising FDI flows appear to have bolstered the balance of payments
- a balance-sheet of the country's financial transactions with
the outside world - especially against the backdrop of an outflow
of $5 billion of portfolio investments during this period.
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