Foreign Direct Investment (FDI) and Portfolio Investment India

India's total foreign capital inflows slipped to USD 2.7 billion as FPIs turned net sellers in April 2019.

Published monthly by RBI. Updated till April 2019 (published on June 18th, 2019)

Recent Data Trend

The net portfolio investors turned into net sellers of USD 1.6 billion in April 2019, after a sharp recovery in the previous month to USD 8.5 billion. On the contrary, net foreign direct investment inflows were stronger and received USD 4.3 billion in April 2019 as against USD 3.7 billion in the last month. A fall in FPI inflows led to a reduction in total investment inflows to USD 2.7 billion in April 2019 compared to near 8-year high of USD 12.2 billion in the pervious month.

There has been a good start with regard to FPI since the beginning of the year. The sharp recovery in March 2018 was short-lived, which indicates the cautious stance maintained by institutional investors in April over elections outcome. With a stable government, the focus may continue to be on economic growth. Other factors such as crude oil prices and uncertainty over global trade prospects will continue to guide the direction of FPI flows in coming months.

A decline in foreign capital could put pressure on the country's balance of payment amid a rising trade deficit to a six-month high of USD 15.36 billion in May 2019 and may also impact the value of rupee. Going forward, the new government is expected to encourage foreign investment inflows, particularly the foreign portfolio inflows into the Indian markets as it lost its attractiveness among FPIs throughout FY2019.

Brief Overview

Foreign Institutional Inflows (FIIs) imply investments registered in a country outside of the one in which it is investing. It constitutes Foreign Direct Investment(FDI), Equity inflows, Non-Residing Indian (NRI) Deposits, etc. However, FDI has been the most attractive form of capital inflow. By definition, FDI is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company. Portfolio investment, on the other hand, is a hands-off or passive investment of securities in a portfolio, and it is made with the expectation of earning a return. It is distinct with FDI which involves taking a sizable stake in a target company and possibly being associated with its day-to-day management. From a sectoral perspective, FDI has mostly flowed into the services sector, followed by the manufacturing sector. In India, foreign investment was mainly introduced in 1991 under the Foreign Exchange Management Act (FEMA). The two routes under which foreign investment can be made are the automatic route and the government route.

Historically, there has been a sea of change in India's approach towards foreign investment since the early 1990s. Pre-liberalisation, FDI through foreign collaboration was only allowed in specific sectors related to high technology. A major shift occurred post-1991 reforms, whereby, restrictions were gradually removed in low technology areas. Over the last decade, reform measures have steadily gained momentum, as is evident from the ever-increasing volumes of FDI inflows being received in India.

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Next Release Date:  July 12th, 2019

Foreign Investment-Quarterly

Foreign Investment-Annual

FDI inflows by Sector