FDI equity inflows touch $4.664 billion for month of May 2011

05 Jul 2011 Evaluate

Breaking the declining trend of foreign investment inflow into India, foreign direct investment (FDI) flow into the country has doubled in May from year ago, touching $4.66 billion against $2.21 billion in May last year. According to the ministry’s note “The FDI equity inflows of $4.664 billion, received in the month of May, 2011, represent the second highest FDI equity inflow, received in any month, for the last eleven financial years (i.e. since April, 2000). They also represent an increase of nearly 111% over the FDI equity inflows of $2.213 billion received in the same month last year (i.e. May, 2010), as also the highest FDI equity inflow, in the last eleven financial years (i.e. since the financial year 2000-2001), received in the month of May”.

The FDI inflow into the country had seen a continues decline during the period of 2009-10 and 2010-11, it declined by 5% and 25% respectively, despite the robust growth of 8-8.5% of GDP. This declining trend in FDI had raised concerns of the government and industry, because, at the same period of time, most of the emerging economies had been able to attract good amounts of FDI inflow. In response to the decline in FDI, government had taken number of steps to simplify the FDI policy in order to attract more foreign investment in the economy.

There has been continues and sustained effort to make the FDI policy more liberal and investor-friendly. Significant rationalization and simplification of the policy has, therefore, been carried out in the recent past, the industry ministry said in a statement on July 4. The FDI equity during the first two months of 2011-12, are $7.785 billion, showing the increase of around 77% over the FDI equity inflow of $4.392 billion for the corresponding period previous year i.e. April-May, 2010.

This increase in FDI inflow is viewed as the positive indicator as the stock market has not been able to attract Foreign Institutional Investors (FIIs). The Foreign Investment in the country is expected to increase in coming months as a number of acquisitions have been cleared against which inflow will come soon. The government observes, this increase in foreign investment as a positive indicator, it says, “Recent investments are an indicator of this positive trend”.

For example, the proposed tie-up between BP and Reliance, with a likely FDI of over $7 billion, could possibly be the single largest FDI into any emerging market. Similarly, Vodafone’s purchase of Essar’s stake, at around $5 billion, is also an indicator of continuing investor confidence in India. The approvals given to POSCO and to the Cairn-Vedanta acquisition (a deal of around $8 - 9 billion) are also likely to substantially increase FDI this year.

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FDI equity inflows touch $4.664 billion for month of May 2011

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