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LATEST NEWS UPDATES | ‘Record’ FDI inflows, yes, cause for celebration, no -Biswajit Dhar and KS Chalapati Rao

‘Record’ FDI inflows, yes, cause for celebration, no -Biswajit Dhar and KS Chalapati Rao

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published Published on Jun 17, 2021   modified Modified on Jun 26, 2021

-The Hindu

The inflows during 2020-21 have not been in sync with the Government’s priorities for economic recovery

In an otherwise gloomy economic scenario, one area of cheer for the Government has been the numbers on inflows of foreign direct investment (FDI). In a recent press release, the Ministry of Commerce and Industry announced that “India has attracted highest ever total FDI inflow of U.S.$81.72 billion during the financial year 2020-21 and it is 10 percent higher as compared to the last financial year 2019-20”. The Reserve Bank of India (RBI) reported that the equity component of inflows was over U.S.$61.4 billion, a 19% increase over the U.S.$51.7 billion received in 2019-20. The credit for this record level of inflows was given to FDI policy reforms, investment facilitation and ease of doing business.

Taken on their face value, these numbers are indeed creditable, especially given that global FDI inflows in 2020 had declined by 42% over the level in 2019, and inflows to developing countries had fallen by 12%. However, if we consider the disaggregated data on inflows into India, the reality of foreign investors’ participation in the Indian economy seems a sharp contrast to what the Ministry has presented.

RBI data as a pointer

The RBI provides a useful disaggregation of total inflows of foreign capital into India. This shows that net of repatriation/disinvestment, FDI inflows had declined by 2.4% in 2020-21, as compared to the previous year. This was due to a 47.2% increase in repatriation/disinvestment, which had reached a record level of U.S.$27.0 billion. The RBI reports yet another disquieting aspect of foreign capital inflow in 2020-21, a high increase in portfolio investment, fuelled entirely by a 69-fold increase in the participation by foreign institutional investors (FIIs), totalling U.S.$38 billion. This was the second highest level of FIIs’ involvement in India, after they invested U.S.$42 billion in 2014-15. Surely, sustained sizeable repatriation of the long-term FDI, together with a large increase in speculative capital does not bode well for an economy looking to recover from an economic slump.

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The Hindu, 17 June, 2021, https://www.thehindu.com/opinion/lead/record-fdi-inflows-yes-cause-for-celebration-no/article34834561.ece


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