Foreign Direct Investment (FDI) and Portfolio Investment India

India's investment inflows declined to USD 1.7 billion in Aug'18.

Published monthly by RBI. Updated till August 2018 (published on October 11th, 2018)

Recent Data Trend

The net foreign inflows in Aug'18 showed a slowdown and stood at USD 1.7 billion compared to USD 7.6 billion in Aug'17. Foreign portfolio investment (FPI), on the other hand, also declined to around USD 0.04 billion in Aug'18, the lowest since Jun' 2016. The total investment inflow was at USD 1.8 billion compared to USD 2.6 billion in the previous month, mainly due to the reduction in the FPI inflows.

Based on the RBI's annual report 2017-18, the country-specific data suggests that Mauritius continued to be the top investing country and contributed nearly 35% to total inflows. It was followed by Singapore (24%) and Netherlands(7%) respectively. The top three sectors attracting the highest FDI equity inflows were services (23% of total inflows), manufacturing(18%) and retail and wholesale trade.

For FY18, India received USD 37.3 billion capital inflow in 2017-18 compared to USD 36.3 billion in the previous year. For FY18, it was the influx of portfolio inflows which compensated for the deficit in the current account. The portfolio inflows performed better in FY18 compared to FY17 but there was a decline in foreign direct investment to USD 30 billion as against USD 35 billion in FY17.

In our view, a pick up in the foreign direct investments (FDI) at this point in time is certainly diffcult, given the uncertainities in the global economy. In the domestic economy, the slowing down of stable FDI flows is a concern for covering the soaring current account deficit which has already reached 2.4% of GDP in Q2F19, on the back of rising global crude oil prices and a depreciating rupee.

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: November 19th, 2018

Foreign Investment-Quarterly

Foreign Investment-Annual

FDI inflows by Sector