• PAGE ONE
• INDEX
• HOME

Effforts to attract FDI inflows prove futile

G. Rambabu

NEW DELHI, July 16

DESPITE the Government's best efforts to attract foreign investors, there has been a gradual slackening of foreign direct investment (FDI) inflows into the country.

At last count, as per the latest estimates of the Ministry of Commerce and Industry, FDI inflows during April 2000 slumped by over 67 per cent to $83 millions from $257 millions in the previous month. Besides, it is 71 per cent lower than the inflows of $290 millions in February 2000.

It is quite ironic that this decline in inflows follows the Union Cabinet's decision in early February to allow clearance of a majority of items through the automatic route. Sectoral caps as applicable for FIPB approval in most cases were not changed, bu t instead of seeking FIPB approval, companies were allowed to opt for the automatic route where they will have to make only a post-facto declaration with the Reserve Bank of India.

The trend over the two months since the Cabinet decision shows that nothing much has changed. On the contrary, the overall FDI inflows has only declined.

A comparison of the FDI inflows through the FIPB route and the RBI route, even two months after the Cabinet decision, shows a major portion (around three-fourths) of the foreign investment continues to be through the FIPB.

However, the fact remains that the total quantum has been on the decline. The inflows through the FIPB route in April 2000 fell by 67 per cent from $174 millions in the previous month to just around $57 millions. This is 70 per cent lower than the inflow s through the FIPB route in February, which read $189 millions. While FDI inflows through the RBI automatic approval route declined from $10 millions in March to $4 millions in April.

The non-resident Indian (NRI) investments have shown a marginal improvement over the three-month period, from $5 millions to $6 millions. However, the acquisition of shares of Indian companies by non-residents has shown a sharp fall from $90 millions in February to $70 millions in March and finally to just around $16 millions in April.

What is more telling on the state of foreign investors' confidence is the FDI inflows for the entire fiscal 1999-2000, which fell to $2.15 billions, a decline of 12 per cent over $2.46 billions in 1998-99, and a drop of 39 per cent over $3.56 billions in 1997-98.

Direct investment through the FIPB route fell by over 22 per cent and the RBI automatic route by five per cent. From $1.82 billions in 1998-99, the inflows through FIPB declined to $1.41 billions in 1999-2000. Similarly, through the RBI route, the inflow s fell from $179 millions to $171 millions.

The only saving grace has been the 24 per cent increase in NRI investments and the 22 per cent increase in acquisition of shares. However, their absolute numbers do not inspire much hope. While NRI investments grew from $62 millions to $84 millions, that of share acquisition grew from $400 millions to $490 millions.

At this rate, the Government's target of attracting foreign investment to the tune of $10 billions during the current fiscal, seems near-impossible.