FDI all set to touch $4bn despite fall in approvals in 1998

The figure is more impressive in rupee terms at Rs 11,790 crore till October compared to Rs 12,989 crore for entire 1997 on account of fall in value of rupee vis-a-vis the dollar in 1998.

The $ four billion is, however, much lower than the earlier projections of about $ five billion for the year. "FDI performance has not been bad at all when one takes a holistic view of the overall economy and the sanctions following nuclear tests in May," sources said. The sources admitted that there has been a "perceptible" fall in FDI approvals during the year but refused to quantify.

Compared to the net outflow of1.3 billion dollars (up to October) from portfolio investments, the $ four billion FDI, if achieved, could be impressive. The $ four billion is excluding the proceeds of global depository receipts (GDRs), which is essentially a capital market equipment.

Approvals have been lower during the year mainly because some sectors like telecom and power, which saw a lot of investment approvals last year, could have become saturated, sources said. "What is more important than approvals are actual inflow and realisation, both of which are showing an upward trend," they said.

The realisation (inflow as a percentage of approvals) of FDI has gone up to 29 per cent from 23 per cent earlier. Realisation corrected to unsuccessful bidders would go up to around 35 per cent. "A realisation of 35 per cent is good by any international standards," they added. The maximum inflow of FDI during the year was from Mauritius, followed by the United States, Japan, Germany and South Korea. Telecom sector attracted the maximum flow offunds during the year, followed by transport, chemicals, services and fuels, sources said.

They said India has been the only country except China among emerging markets to show positive trend in FDI inflows during last year. The type of investment coming to India was also very promising, sources said, adding that most of the funds are going into hi-tech areas.

India would soon emerge as a major base for areas like software and automobile and auto components, the sources said. In this regard, they pointed to the project undertaken by Fiat, Unido and ministry of industry to improve the quality of auto components in the country.

While Unido would provide the funds for the project, Fiat would give technical expertise. Industry ministry would work as a catalyst providing policy initiatives.They said 80 per cent of the FDI inflow were into greenfield projects, unlike some South East Asian countries where most of the funds are flowing into acquisition of companies at throw away prices due to the currencymeltdown.

The sources said the FDI that has come through the automatic route and are yet to be reported to the Reserve Bank of India (RBI) would not be more than $ 500 million. There is lag of several months before the inflow is actually reported because of an earlier relaxation in guidelines allowing companies to report the foreign remittance only within 30 days of the issue of shares.

RBI has since amended its inflow reporting mechanism by making it mandatory for Indian companies to report foreign remittance within 30 days of receipt of funds. The inflow of foreign direct investment in India has slowed down. Of the several explanations for this adverse turn, one is the cautious perception on prospects of the emerging markets; another is the attractive acquisition bargains available in the tiger economies, following the drastic devaluation of their currencies. Besides, India is not the hot market it was assumed to be during the first episode of reform.

Foreign investors in automobiles and cellularphones have learnt this the hard way. The slow down in annual foreign direct investment inflows is thus only to be expected. Inflows in the past few years have not been large. Even so, the fact is that India needs foreign investment.