FDI in India at $5.4 billion in Q1

Foreign Direct Investment (FDI), or investment by foreign companies to start or expand their operations in India, remained lackuster in the first quarter of the current financial year, according to data from the trade ministry.

A total of $5.4 billion was received by India during the June quarter, compared to $22.4 billion during the whole of last year.

In other words, FDI remains at depressed levels, having seen a sharp drop from the $35 billion range seen in 2011-12. $35 billion was the unofficial target for last year as well. 

FDI is a measure of confidence in the long term potential of the Indian economy. The other major source of dollar capital – FII or foreign institutional investor investment – happens through the share market. This money is not considered long term as FIIs can easily liquidate and exit their investments within minutes or hours.

It is not clear whether the government’s FDI inflow numbers are net or gross – in other words, whether they take into account withdrawal or sale by foreign companies of their assets in India.

Asked about this year’s FDI target, the government said it had no such figure. “No targets are fixed for FDI inflows, nor is an assessment of future inflows possible, as FDI is largely a matter of private business decisions,” it said.

The government gives special privileges to NRIs or non-resident Indians when it comes to investing in India.

They are allowed special privileges in sectors of townships, housing, built-up infrastructure and construction-development projects, air travel and ground handling.

It recently relaxed foreign investment norms for sectors such as petroleum & natural gas; commodity exchanges; power exchanges; stock exchanges, depositories and clearing corporations; asset reconstruction companies; credit information companies; tea; single brand product retail trading; test marketing; telecom services; courier services and defence.

India has seen a sharp devaluation of its currency, the Rupee, due to concerns about how it is going to fund its increasing import bill to pay for rising consumption of oil, gold and electronics. It has typically relied on FDI and FII investments to meet dollar requirements, while running a dollar deficit in its revenue and trade accounts with the rest of the world.