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India FDI Inflow Dips 25% In 11 Months Of 2010-2011

By TEAM VCC

  • 25 Apr 2011

India needs to worry on the foreign direct investment (FDI) front. According to the statistics released by India’s Ministry of Commerce and Industry, the country has received only $18.35 billion in FDI in the first 11 months (April-February) of the financial year 2010-2011, compared to $24.63 billion that came in the 11 months of the previous financial year. Although it is a significant dip, the government has not mentioned the reasons for the fall except for saying that the “trend will be reversed as it has received a few proposals for FDI".

Anand Sharma, Minister for Commerce & Industry, said that “fresh investments, particularly in services sector – computer (software and hardware), telecom, construction and real estate – have been received”, according to a report. Some of the deals that the government is betting on include British Petroleum’s proposal to buy 30 per cent stake in 23 out of 29 exploration blocks, held by Reliance Industries, which would be worth $7.2 billion, according to the deal announced in February, and Vodafone’s deal to acquire the 33 per cent stake held by Essar in Vodafone’s India operations announced in March.

The FDI inflow in the full financial year (April-March) of 2009-2010 was $25 billion. Going by the current data, it is unlikely that India has recorded large numbers in March 2011, to beat last year’s FDI inflow.

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The services sector (financial and non-financial) attracted maximum FDI during the period, accounting for $3.2 billion or about 17.7 per cent of the FDI. The telecom industry came in second with $1.4 billion or 7.6 per cent, followed by automobile ($1.32 billion or 7.1 per cent), power ($1.23 billion or 6.7 per cent), housing and real estate ($1.1 billion or 6 per cent).

In other highlights of the statistics, Mauritius continues to be the preferred route for directing FDI into India. About 36 per cent of FDI came via Mauritius in the first 11 months of the last financial year – mainly because most of the investors want to take advantage of the double taxation avoidance agreement between Mauritius and India and Mauritius-based investors do not have to pay capital gains tax in India. Singapore is the second largest contributor of FDI after Mauritius, accounting for nearly 9 per cent of the investment during the same period. Japan comes in third with 8.3 per cent, followed by the Netherlands and the USA with 6.1 per cent each, and Cyprus with 4.5 per cent. The UK is a distant eighth in FDI ranking, contributing only 2.8 per cent of the inflow into India during April-February 2010-11.

Among the Reserve Bank of India regional offices that monitor the FDI inflow into the country, Mumbai has received the largest amount of FDI worth about $5.7 billion in the 11 months of 2010-2011, followed by New Delhi with $2.4 billion. This constitutes about 31 per cent and 13.4 per cent respectively. Chennai came third with 7.2 per cent or $1.32 billion, closely followed by Bangalore with 7.1 per cent or $1.3 billion and Hyderabad (6.5 per cent or $.2 billion). Ahmedabad, which has been traditionally receiving higher FDI, got only $692 million in the 11 months of 2010-2011.

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