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FM's address of India : Economic growth and outlook
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03. INVESTMENT UPDATE

FDI INFLOWS REGISTER UNPRECEDENTED GROWTH

Shri Kamal Nath, Union Minister of Commerce & Industry, while briefing the media persons informed that during the financial year 2006-07, the FDI equity inflows have been US $ 15.7 billion as compared to US $ 5.5 billion received during 2005-06. This is a growth of 185% as compared to the previous year. This is also the first time that FDI equity inflows into India have crossed the US $ 10 billion mark.If reinvested earnings and other capital inflows are also included, the total inflows in 2006-07 add up to US$ 19.5 billion compared to US$ 7.7 billion during the same period last year showing a growth of 153%.

During the first quarter of the Financial Year 2007-08, the FDI inflows have been US$ 4.9 billion as against US$ 1.7 billion received during the corresponding quarter of 2006-07, registering a growth of more than 185%. The first six months of the current calendar year (January-June 2007) have witnessed FDI inflows of US$ 11.4 billion as against US$ 3.6 billion received during the same period in 2006.

This indicates a growth of 218%.With regard to industrial production, Shri Kamal Nath stated that as per the Quick Estimates of Industrial Production released by the Central Statistical Organization, the industrial production registered a double-digit growth of 11% in the first quarter of the current fiscal as compared to the corresponding period of the previous year.The Manufacturing Sector, which has around 80% weightage in the Index of Industrial Production, has also shown a double-digit growth of 11.9% during the first

quarter of Financial Year 2007-08 (April to June 2007) as compared to a growth of 11.7% in the previous year. For the Financial Year 2006-07, Manufacturing Sector registered a growth of 12.5%, up from 9.1% in 2005-06. This was the highest growth registered by the Manufacturing Sector since 1995-96. Among the use-base economic sub-groups, Capital Goods have registered an impressive growth of 22.3% during April-June 2007-08.

The industries which have shown a noteworthy performance during April-June 2007-08 include ‘Wood and Wood Products; Furniture and Fixtures’ (104.7%), ‘Jute and other Vegetable Fibre Textiles (except cotton)’ (30.1%), ‘Food Products’ (27.1%), ‘Basic Metal and Alloy Industries’ (20.1%),‘Machinery and Equipment other than Transport Equipment’ (19.2%) and ‘Rubber, Plastic, Petroleum and Coal Products’ (10.8%).

INDIA'S DIRECT INVESTMENT ABROAD INCREASES
80 PER CENT IN 2006-07

The massive surge in investment by foreign institutional investors (FII) after the Fed rate cut has prompted RBI to propose further liberalisation in norms of foreign investment by Indian companies, residents and mutual funds (ET, September 25). FII inflows stood at a staggering $1.5 billion and the Central bank proposed to increase outward investment to control liquidity and rein in rupee.

Maybe further liberalisation of norms would increase outflow of funds and help to control the liquidity position, but the fact is that India’s investment abroad has already been increasing rapidly. In five years, between 2001-02 and 2006-07, total international assets of India has increased at an annual compound rate of 24.2% against 12.6% annual rise in total international liabilities. The net international liabilities as a result, have gone down by over 40% from Rs 3,37,285 crore in 2001-02 to Rs 1,97,390 crore in 2006-07.

India’s direct investment abroad, of which equity capital and reinvested earnings account for 90%, has increased by more than five times from Rs 19,550 crore in 2001-02 to Rs 1,04,494 crore last year. In 2006-07 alone the direct investment outflows increased by 80% over 2005-06.In contrast, direct investment inflows to India during 2001-02 to 2006-07 has increased by about two and a half times from Rs 1,21,043 crore to Rs 3,15,339 crore. And if in actual terms, the net inflows of direct investment have more than doubled during this period

what is significant is that direct investment outflow from India is growing at a faster rate now and more liberalisation of norms will boost its growth further narrowing down the gap.In fact, the outflow under direct investment had stagnated during the early part of the current decade and only during the last two years after liberalisation of norms of outward investment, it has grown rapidly.

But if India’s direct investment abroad is rising at a higher rate than inflows, the gap between inflows and outflows of portfolio investment has been widening rapidly over the years. Not surprising. For, the recent spurt in stock prices has made Indian bourses most sought-after investment destinations of late.Total inflows of portfolio investment has more than doubled during the last five years from Rs 1,53,915 crore in 2001-02 to Rs 3,49,841 crore in 2006-07.

Investment in equity securities which accounts for about 70% of the total portfolio investment has gone up three times during the period from Rs 90,833 crore to

Rs 2,75,812 crore.Total outflow underportfolio investment during the same period in contrast, has increased by only 8% from Rs 3,188 crore to Rs 3,441 crore. Investment in equity has remained unchanged during the period.

May be RBI’s recent proposals will pave the way for higher portfolio investment abroad. For, although the government had made a case for a liberal dispensation for Indian mutual funds to invest abroad in the past, the enabling approvals for investing in a range of products overseas were yet to be granted.

The biggest component of India’s international liabilities was, however, loan which accounts for 28% of aggregate liabilities in 2006-07. This may be due to ongoing technological upgrading and expansion of domestic industrial activities, RBI has observed. Higher investment demand by Indian companies are reflected in increase of external commercial borrowings.

Source : The Economic Times

MAJOR SECTORS RECEIVING INFLOWS IN FY 2007-08 (up to May 2007)

Services, Telecom, Electrical Equipments, Real Estate and Transportation are the 5 major sectors receiving FDI inflows in 2007-08.

TOP INFLOWS IN FY 2007-08 (up to May 2007)

M/s. Vodafone (Mauritius) (US$ 801 million) (telecom), M/s. Matsushita Electric Works, Japan, (US $ 342 million) (electrical products), M/s. GA Global Investments Ltd., (US$ 258 million) (National Stock Exchange), M/s. EMAAR Holdings, Mauritius (US$ 204 million) (Real estate construction), M/s. L B India Holdings Mauritius Ltd. (US$ 118 million) (Real Estate) are the top foreign investments received during the current financial year.

MUMBAI AND DELHI REGIONS LEAD IN FY 2007-08 (up to May 2007)

Delhi Regional Office of RBI registered inflows of US$ 1.3 billion amounting to around 36% of the total inflows during the year. Mumbai, Bangalore, Chennai, and Hyderabad are the other major regions, which have received FDI inflows. The five regions mentioned above constitute two-thirds of the total inflows received.

TOP COUNTRIES INVESTING IN FY 2007-08 (up to May 2007)

 The total inflows received from the top 5 investing countries during the first two months of the financial year are US$ 2.9 billion. Major investment (US$ 1.9 billion) during 2007-08 came from Mauritius. The other major countries investing are Japan, Cyprus, USA, and Singapore.
 


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