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NEW DELHI, June 30

WITH the Union Government shedding its "conservative approach" in compilation, the data on foreign direct investment (FDI) into India will, henceforth, look far rosier than ever before.

In its efforts to bring the FDI data reporting system into alignment with international best practices, the Government, instead of merely taking the equity component into consideration, has now decided to broaden the parameters and include various items under three major heads - `equity capital', `reinvested earnings' and `other capital' - so as to expand the coverage of FDI statistics.

As a direct consequence of these changes brought about jointly by the Department of Industrial Policy and Promotion (DIPP) and the Reserve Bank of India (RBI, the FDI inflow data for 2000-01 and 2001-02 stand revised to far healthier levels. For the year 2000-01, the FDI into India has been pegged at $4,029 million instead of the currently published data indicating $2,342 million. The hike of $1,687 million is accounted for by reinvested earnings ($1,350 million) and other capital ($279 million), apart from the equity component of $2,400 million.

Similarly, the FDI inflow figures for 2001-02 have also been revised to $6,131 million as compared to the "conservative" $3,905 million. The near doubling in investment figures is owing to an equity component of $4.096 million, reinvested earnings worth $1,646 million and other capital accounting for $390 million.

This follows the initiative taken in May 2002 by the DIPP, which, in consultation with the Reserve Bank of India (RBI), set up a committee to look into the issue and submit its report on FDI compilation. The committee recommended that apart from equity capital, `reinvested earnings' (retained earnings of FDI companies) and `other direct capital' (inter-corporate debt transactions between related entities) should be included in the data in keeping with international norms.

Subsequently, a technical monitoring group (TMG), comprising representatives of the DIPP, the RBI, the Department of Company Affairs (DCA) and the National Informatics Centre (NIC), was constituted in November last year to oversee speedy implementation of the committee recommendations.

The main task of the TMG was to identify the various components of FDI, which are operationally feasible, and capture these components in a specified institutional framework within a specified period. The TMG submitted its `action taken report' (ATR) on June 27last week.

In its report, the TMG concluded that within the three major heads, the inclusion of 14 items in the country's FDI data compilation would, by and large, comply with the international best practices.

The group included 14 items under the three major heads. These are:

A. Equity capital — Equity capital of unincorporated entities; Non-cash acquisition against technology transfer, plant and machinery, goodwill, business development and similar considerations; Control premium; and Non-competition fees.

B. Reinvested earnings — Reinvested earnings of incorporated entities; Reinvested earnings of unincorporated entities; and Reinvested earnings of indirectly held direct investment enterprises.

C. Other capital — Short-term and long-term inter-corporate borrowings; Trade credit; Suppliers credit; Financial leasing; Financial derivatives; Debt securities; and Land and buildings.

For the present, however, the revised data on FDI includes all items indicated under equity capital (except non-cash acquisitions). The equity capital of unincorporated entities includes the equity capital of foreign banks' branches in India. Similarly, all items under the reinvested earnings have been included except reinvested earnings of indirectly held direct investment enterprises. Data under `Other Capital' relate to short-term and long-term borrowing, trade credit and suppliers' (more than 180 days) and financial leasing.

Thus, currently, out of 14 items, the FDI data does not include six items, namely, (i) non-cash acquisitions, (ii) reinvested earnings of indirectly held direct investment enterprises, (iii) short-term trade credit, (iv) financial derivatives, (v) debt securities and (vi) land & buildings. The TMG is exploring the feasibility of including these items in future, according to a DIPP press note issued here on Monday.

In future, reinvested earnings and equity capital of unincorporated bodies will be included in FDI data on an annual basis, as these are culled out from the balance sheets of the FDI companies. Each year, these data will become available with a time lag of one year e.g., data for 2002-03 will be available by June 2004.

Consequently, for these items, advance estimates will be incorporated in the BoP data until firm data become available with a time lag of one year.

For 2002-03, the data on reinvested earnings are estimated as the average of the previous two years of 2000-01 and 2001-02. In the future as well, there will be a regular one-year lag in the reporting of reinvested earnings. `Other capital' may be captured on a quarterly basis and will be reported together with quarterly dissemination of BoP statistics, the press note said.

Accordingly, the estimates for data on FDI for 2002-03 stand revised to $4,660 million instead of the currently published figure of $2,574 million. The new figure, higher by $2,086 million, is owing to $1,498 in reinvested earnings and $462 million in other capital, apart from $2,700 coming in as equity.

The press note mentions that as the data with regard to investments by India abroad also stands changed, the figures in that respect would also undergo changes. For instance, for 2002-03, the revised FDI by India abroad has gone up to $1,049 million from the earlier $459 million for much the same reasons.

This, in turn, will have implications on the balance of payments (BoP). In terms of standard practice of BoP compilation, the revision of FDI data will not affect India's overall BoP position for these two years.

The RBI and the DIPP would jointly continue to monitor the compilation of FDI statistics through TMG until the reporting system relating to remaining items of FDI is stabilised.

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