Foreign Direct Investment (FDI) and Portfolio Investment

No drastic changes in India's foreign inflows as of May 2019.

Published monthly by RBI. Updated till May 2019 (published on July 15th, 2019).

Recent Data Trend

The net foreign portfolio inflows stood at USD 0.7 billion in May 2019 compared to a net outflow of USD 1.4 billion in May 2018. Foreign direct investment, which comprises of equity capital, reinvested capital and other capital shrank to USD 2.1 billion in May 2019 as against USD 3.7 billion in the year-ago period. The total investment inflow showed a slight improvement after falling in the previous month and stood at USD 2.8 billion.

In the month of May 2019, FPI inflows turned optimistic on account of PM Narendra Modi-led BJP's victory in the lower house general election 2019. Given the establishment of a stable government, the focus will remain on economic growth. Other factors such as crude oil prices and uncertainty over global trade prospects can also 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.

For more information, please visit the government website.

Next Release Date:  January 12th, 2020

Foreign Investment-Quarterly

Foreign Direct Investment-Annual

FDI Inflows by Sector-Annual

For more information, please visit the government website.