Slowing Foreign Direct Investment to India
(Effective May2024, all the forex data are updated in new blog Forex Data Bank)
(please check updates 22May2024, 10Nov2023 and 25May2023, with latest data, at the end of the article)
Foreign Direct Investment (FDI) inflows to India have slowed down in the financial year 2021-22, according to data from Reserve Bank of India (RBI).
India depends heavily on foreign capital, which flows into India through two routes mainly -- foreign direct investments (FDI) and foreign portfolio investments (FPI). Of the two, FDI flows are preferable to FPI flows in view of the fact that FDI is
long-term in nature and more sustainable. On the other hand, FPI is considered
‘hot money’ and is prone to volatility in the financial markets.
In a baffling and misleading press note some days ago, India's Ministry of Commerce & Industry claimed that "India gets highest FDI inflows of USD 83.6 billion in FY 2021-22," and "FDI inflows increased 20-fold in the past 20 years."
India's fawning media reported these claims verbatim without bothering about their veracity. (Remember the character Uriah Heep in Charles Dickens' "David Copperfield"? -- I'm dreadful of such obsequious types.)
I got curious to find out why was the Ministry want us to know the information in the first place (governments are known for controlling the narrative 24 x 7 x 365).
(story continues below)
-----------------------
Related Articles:
-----------------------
Then I checked the official data. The Ministry's disinformation drama is as follows: For 2021-22, the gross FDI inflows are USD 83.6 billion, but the repatriation / disinvestment amount# is USD 28.6 billion--so the actual FDI to India is only USD 55 billion for the year.
(# Multi-national companies (MNCs) present in India repatriate profits in the form of dividends, royalties and others every year. Some companies close their businesses in India and take out their money. These numbers are reported as repatriation / disinvestment by RBI.)
From this USD 55 billion, we need to deduct FDI by India (the investments made by Indian companies in foreign countries) which is USD 15.7 billion. So, the net FDI flows to India are only USD 39.3 billion in 2021-22; and not USD 83.6 billion as claimed by the Ministry.
The Ministry's another claim "FDI inflows increased 20-fold in the past 20 years," also turned out to be false. Net FDI to India in 2001-02 was USD 4.7 billion as per data from RBI. Net FDI to India in 2021-22 is USD 39.3 billion--an increase of 8.3 times, not 20-fold as incorrectly claimed by the Ministry.
The relevant figure for the country is net FDI to India (after repatriation / disinvestment and net FDI by India), not gross FDI inflows. The Ministry's data conveniently ignores the print of repatriation / disinvestment and FDI by India. Of course, this type of disinformation is not new in India. That's why we should never take government numbers at face value. As some wise man said, facts are not truth.
As delineated in below Table, the net FDI to India has fallen by 10.6 per cent to USD 39.3 billion in 2021-22 as compared to previous year's print of USD 44 billion. This is official data from RBI, India's central bank.
Table: Data of FDI to India and FDI by India from 2006-07 to 2021-22:
References:
- - -
P.S. 5 dated 22May2024: New chart with data of Gross FDI Inflows and FDI Repatriated from FY 2006-07 to 2023-24 >
While gross FDI inflows to India are up 97% (CAGR 7%) in the past 10 years, FDI repatriated out of India is up by a staggering 740% ( CAGR 23.7%).
Table 3: FDI inflows are down 13.7% (CAGR -1.5%) in the past 10 years from USD 30.8 billion in 2013-14 to USD 26.6 billion in 2023-24, as per latest data from RBI.
Table 2: Data from 2006-07 to 2023-24: Gross FDI inflows, FDI repatriated, FDI to india, FDI by India and net FDI; and their annual growth rates are given here:
While gross FDI to India in FY 2023-24 remains stagnant at USD 71 billion, FDI repatriated surged by 51% to USD 44.4 billion.
Net FDI to India (after deducting FDI by India) is just USD 10.6 billion in FY 2023-24, down a staggering 62.2% compapred to previous year.
P.S. 4 dated 22May2024: Chart with updated data for FY 2023-24 >
One of the biggest economic policy failures of PM Modi gov't is the precipitous fall in FDI in the past three years consecutively.
In fact, net foreign direct investment (FDI) to India in FY 2023-24 is just USD 10.6 billion, which is the lowest in 17 years.
P.S. 3 dated 10Nov2023: Chart with updated data for FY 2022-23 >
The updated chart shows figures in Rs crore for FY 2022-23.
In the past 9 years under PM Modi gov't, FDI inflows showed an absolute growth of 29.8 percent or just 2.94 percent annualised growth (CAGR) which can be considered as abysmal.
P.S. 2 dated 25May2023: Chart with updated data for FY 2022-23 >
The updated data show that net FDI to India in FY 2022-23 is down a massive 27 percent year on year in USD terms to USD 28 billion vs USD 38.6 billion previous year.
(in 2010-11, net FDI to India was down 34%)
P.S. 1: Latest data from RBI press release dated 22Jun2022 > "Net FDI inflows at US$ 38.6 billion in 2021-22 were lower than US$ 44.0 billion in 2020-21."
-------------------
Read more:
JP Morgan Guide to Markets
Rant on Tata Steel Ltd
A Quick Glance at UPL Limited
What is Cooking Behind LT Foods' Share Price Rise? A Rundown on Prince Pipes & Fittings
Primer on Credit Rating Scales
When Will Foreign Investors Stop Selling Indian Stocks?
Indian Mutual Funds and The Art of Ripping Off Investors Do Paint Stocks and Crude Oil Tango?
Weblinks and Investing-------------------
Disclosure: I've vested interested
in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if
any.
Disclaimer: The analysis and
opinion provided here are only for information purposes and should not be construed
as investment advice. Investors should consult their own financial advisers
before making any investments. The author is a CFA Charterholder with a vested
interest in financial markets.
CFA Charter credentials - CFA Member Profile
CFA Badge
He blogs at:
https://ramakrishnavadlamudi.blogspot.com/
https://www.scribd.com/vrk100
Twitter @vrk100
