Foreign Direct Investment (FDI) and Portfolio Investment India

Foreign inflows to India declined in January '18

Published monthly by RBI. Update till the month of January 2018 (published on March 13th, 2018)

Recent Data Trend

In January 2018, net foreign inflows experienced a dip and stood at USD 1.9 billion, following a three-month high of USD 4.3 billion in December 2017. Portfolio investment, on the other hand, saw a surge and reached a seven month high of USD 3.5 billion. The total investment inflow increased to USD 5.4 billion, on account of strong portfolio inflows in January.

Country-specific data suggests that Mauritius continued to be the top investing country and contributed 34% to total inflows. It was followed by Singapore (17%) and Japan (7%) respectively. The top three sectors attracting the highest FDI equity inflows were services (17% of total inflows), telecommunications (8%) and computer hardware & software.

Ona cumulative basis, FDI inflows have slowed down to USD 26 billion from USD 34 billion in the same period a year ago. In our view, the pressing concern is that only a few sectors have received enormous foreign investor interest such as multi-brand retail trade, services, and insurance. Sectors such as pharmaceuticals, infrastructure, automobiles have lagged behind to garner interest. Also, the majority of inflows is towards brownfield ventures as against greenfield ones. The NDA government has repeatedly stressed on high FDI inflows as one of the measures of success. We believe that the composition of inflows is equally important and the present government needs to tweak policies and address the lagging sectors to ensure a sustainable and broad-based inflow.

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 services sector, followed by the manufacturing sector. In India, foreign investment was mainly introduced in 1991 under Foreign Exchange Management Act (FEMA). The two routes under which foreign investment can be made are automatic route and the government route.

Historically, there has been a sea 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: First half of March 2018

Foreign Investment-Quarterly