Flow of foreign funds drops

New Delhi, Feb. 20: Foreign direct investment inflow into the country plunged 42 per cent to $16.94 billion during the April-December period because of the global economic slowdown and policy paralysis of the government in the first half of this fiscal, data from the Department of Industrial Policy and Promotion (DIPP) revealed.

However, analysts are hopeful of a revival in foreign direct investment (FDI) this year following economic reform measures undertaken by the government to boost investors' confidence.

The government stepped up reform measures since September by relaxing rules on foreign investment in retail, aviation, commodity exchanges, power exchanges, broadcasting, non-banking financial institutions and asset reconstruction companies. It also raised diesel prices and cut tax on Indian companies borrowing abroad.

The UPA government has also approved proposals to allow greater foreign holding in pensions and insurance industries. However, the move requires parliamentary approval, which is unlikely since the ruling alliance does not have the majority in the Upper House.

According to the report by the Institute of International Finance, private capital flows to emerging economies are set to rise to $1.11 trillion in 2013, a 3.5 per cent growth from an estimated $1.10 trillion last year.

"FDI inflows to India will be lifted by the opening up of previously closed sectors and the withdrawal of controversial tax plans, although infrastructural deficiencies and administrative hurdles will remain dampening factors," the report by the international lobbying group for financial firms said.

Sectors which received large FDI inflows during the nine months include services ($4.04 billion), hotel and tourism ($3.15 billion), metallurgical ($1.30 billion), construction ($1.08 billion) and automobile ($803 million).

India received maximum FDI from Mauritius ($7.45 billion), followed by Japan ($1.62 billion), Singapore ($1.63 billion), the Netherlands ($1.33 billion) and the UK ($622 million).

Inflows had aggregated to $36.50 billion in 2011-12 against $19.42 billion in 2010-11 and $25.83 billion in 2009-10.

Foreign investments are important for India, which needs around $1 trillion in the next five years to overhaul its infrastructure sector such as ports, airports and highways to boost growth.

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