Foreign Direct Investment (FDI) and Portfolio Investment India

In September 2017, FDI inflows declined to a six-month low of 1.1 billion USD from the previous month.

Published monthly by RBI. Update till the month of October 2017 (published on December 13th, 2017)

Recent Data Trend

In September 2017, the foreign direct investment (FDI) into the country stood 1.1 billion USD. FDI inflows declined from the record-high level of 8.6 billion USD inflows in August. Portfolio investment has seen a deceleration since May 2017 and the figure for September contracted by 1.5 billion USD, lowest since December 2016. Total investment inflows also declined to 0.4 billion USD, mainly due to a decline in FDI inflows and portfolio investment. The downward trajectory in the portfolio investment as compared to FDI inflows, is not necessarily a negative news, as FDI inflows is generally associated with establishing a 'lasting interest' in a domestic enterprise as compared to passive investment in the former case. However, concerns linger over the composition of inflows as lately, there have been green shoots for brownfield projects, since most inflows are directed at taking over or increasing stake in existing companies or facilities, as against an expansion of new production capacities, commonly termed as greenfield investments.

On the quarterly front, the July-September quarter attracted 13.6 billion USD as compared to 7.2 billion USD in the April-June quarter. The overall result for September came as a negative surprise, as the largest ever FDI deal (13 billion USD, Rosneft buyout of Essar Oil) was finalized in the second quarter of 2017. The recent upward jump for India (30 spots) in World Bank's Doing Business (DB) report to the 100th spot may likely accelerate FDI inflows in greenfield projects. Additionally, the sovereign rating upgrade and 'stable' outlook report by Moody's Investor services has now put India in a favorable position in terms of investment climate and can catalyze FDI flows in the longer term. While global business sentiments seem to change course for the better, on the back of improving economic prospects, foreign inflows will likely see a rebound in the next quarter.

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 January, 2018