BHARAT STILL SECOND BEST FDI SPOT, RECENT DIP TEMPORARY - NOMURA
and/or www.mantra.com/jai
PTI
The Pioneer
Monday, April 11, 2011
Mumbai - Nomura India has said despite the recent massive slump in
FDI inflows, India remains the hottest investment destination in the
world after China and inflows will return to the pre-crisis peak
levels by early 2012.
Foreign direct investment (FDI) inflows plunged 25 per cent in April-
January period to $17 billion year-on-year. The figure was more
alarming in January when it nosedived 48 by per cent to $1.04
billion.
Attributing the recent decline to primarily global factors, Nomura
India vice-president and economist Sonal Varma said following the
2008 crisis, other emerging markets too saw sharp drop in FDI inflows
but picked up steam after two years unlike India.
"Of the $12-billion decline in FDI inflows between 2008 and 2010,
around 60 per cent was due to weak inflows into service spaces like
computer software and hardware, financial services, banking, and
construction," Varma said.
"The sharp drop in inflows into banking and other financial services
is unsurprising as the crisis led firms to restructure operations.
As a result, share of infrastructure in total FDI inflows rose to
24.7 per cent in 2010 from 16.3 per cent in 2007 and that of
manufacturing rose to 32.1 per cent from 19.6 percent, despite an
fall in the absolute numbers in FY11," she said in her report.
While globally, overcapacity, credit crunch, fragile growth and
increased risk aversion led multinational corporations to curtail
investment, locally, the environment sensitive policies pursued
appear to have affected the investor sentiments, she said. "Delay in
framing a land acquisition law has also hurt.
In addition, the country's cost-competitiveness may have taken a hit
due to deteriorating quality of infrastructure, elevated inflation, a
skilled labour shortage, rising wage costs and corruption," Varma
pointed out.
Other factors like tax issues (income tax notice on Vodafone), delay
in $9.6-billion Carin-Vedanta deal, many corruption cases are also
said to be keeping off investors.
Shedding some fresh light into the fall, Varma said in fact the fall
is not as hard it is being made out to be as the decline in more of a
definitional issue than actual.
Quoting an ISID research report, she said, under 50 per cent of FDI
inflows between September, 2004 and December, 2009 can be termed as
FDI in the purest sense.
The rest bear a greater resemblance to volatile portfolio flows,
these comprise round-tripping, and private equity/venture capital/
hedge fund related inflows.
"For instance, only 13 per cent of inflows into realty and
construction can be termed FDI, which helps explain why measured FDI
inflows into this sector dropped sharply after the crisis," she
added.
Mauritius, Singapore, US, Britain, the Netherlands, Japan, Germany
and the UAE are the major investors here.
In April-January 2009-10, $22.9 billion flew in as FDI. In FY10, it
declined to $25.88 billion from $27.33 billion in the previous
fiscal. The sectors that attracted FDI include services (financials
and non-financial), telecoms, housing, realty, construction and power
during this period.
Apart from the services, said Varma, the other areas that saw sharp
dip include realty, infrastructure and manufacturing, with the
deepest fall being into the real estate space. At present, share of
FDI as percentage of GDP is a measly 2.5 per cent in the country.
With a view to increase this, and to discourage hot money inflows by
way of FII funds, government recently scrapped a set of cumbersome
norms that entailed the foreign partner first getting the NOC from
his domestic JV partner if it wanted to enter into a similar business
with a new partner.
The RBI is also planning to set up a panel to find out the reasons
for the FDI slowdown and suggest ways to encourage it.
"Looking ahead, we believe that the current decline in FDI is
temporary. According to the Institute of International Finance, FDI
inflows into EMs will rise by 11.4 per cent in 2011, while an Untcad
survey ranks India as the second top-priority host economy for FDI in
2010-12 after China, she said.
"Still, policymakers cannot be complacent. Reducing procedural and
infrastructural bottlenecks and encouraging FDI into the hitherto
closed sectors will be just as important," she added.
According to a recent RBI report, since December 2008, FDI have grown
from $125.2 billion to $198 billion in December, 2010, while
portfolio investment, both in equities and debts, jumped from $91.6
billion to $171.7 billion during the same period.Growing from
December, 2008, FDI stood at $145 billion in June, 2009, and
increased to $167 billion in December, 2009. It further grew to
$178.3 billion in June, 2010 and to $198 billion by December, 2010,
said the RBI.
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Om Shanti
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