New Delhi: Portfolio flows may be drying up, but foreign direct inflows (FDI) come as a pleasant surprise. After a 25% fall in the last financial year, FDI in India rebounded sharply in April. Inflows rose 43% from a year ago to $3.1 billion. The recovery has been broad-based with majority of the investments going into auto, construction and services industries. Read more...-
Will the momentum in FDI sustain?
The concerns arise from the changing investment landscape. With the RBI consistently raising interest rates, it is widely expected that the Indian economy will slow down in the current financial year. Add to this, the ongoing debt crisis in Europe and wobbly US economy, risks to inflows are definitely on the rise.
However, analysts at Nomura are not overtly worried. In a 21 June note, Sonal Varma and Aman Mohunta reasoned that inflows might continue to remain strong due to several large proposals in oil & gas, telecom industries and the simplification of rules.
One month does not make a trend, but there are reasons to believe that this may be the start of a new phase. In our view, FDI inflows should remain supported by several large FDI proposals in the oil & gas, metal and telecom sectors; simplification and fast- tracking of the approval process; a relaxation of the rules; and a possible increase in the FDI ownership ceiling in some key sectors.
Another area Sonal Varma and her team are banking on is the relaxation and simplification of FDI rules and procedures. The government on 31 March has scrapped the contentious Press Note 1 that requires a foreign company to obtain approval of its domestic JV partner to make investments in the same field. Read more...
Also, the department of industrial policy and promotion has initiated steps to consolidate all related rules and regulations into a single document. With high oil prices putting pressure on trade deficit, there are expectations that the government will relax FDI limits to attract more inflows.