FDI inflows likely to swell to $40 bn

Foreign direct investment (FDI) inflows are likely to expand by 62.8 per cent in 2008-09 to $40 billion, as against $24.57 billion in the last financial year as the services sector is expected to attract a major chunk of foreign investments
“In the January-June period of 2008, FDI inflows crossed $20 billion, while in the first quarter period (April-June) this year, inflows were over $10 billion. Looking at this trend, FDI inflows in 2008-09 may cross $40 billion,” industry secretary Ajay Shanker told reporters at a Ficci seminar here today.

“Higher FDI inflows will help in moderating the depreciation of the rupee against the US dollar,” said Saugata Bhattacharya, vice-president, Axis Bank.

Significantly, the Prime Minister’s Economic Advisory Council had estimated FDI inflows, which are long term foreign investments, would be of the order of $46.2 billion in 2008-09. The commerce and industry ministry had forecast an FDI inflow $35 billion in the current fiscal. The industry secretary’s estimate falls between the two projections.

Moreover, with increasing number of Indian companies investing abroad, the council had forecast an FDI outflow of $26.5 billion during 2008-09. As a result, the net FDI inflow is pegged at $19.7 billion during the current fiscal.

With the wholesale price index-based headline inflation currently at a 16-year high, the domestic equity markets have become less attractive for overseas investors. According to data released by the Securities & Exchange Board of India today, the net outflow of equities held by foreign investors between January and August this year stood at $7.7 billion.

Desegregated data available with the Department of Industrial Policy and Promotion shows that between April and May this fiscal, the tax haven of Mauritius continued to be the top source of FDI inflows ($2.85 billion), followed by the United States ($794 million) and Singapore at $616 million.

In the first two months of 2008-09, financial and non-financial services sector attracted FDI inflows of $1.19 billion, followed by construction sector with $1.16 billion.