Tuesday, August 3, 2021

FDI AND FPI PUSHING INDIA’S GROWTH ENGINE FOR TRACTION

Script by G. Srinivasan, Senior Journalist

The endorsement of India’s ongoing sure but steady economic recovery in the face of the pandemic-hit global economy’s generalized slowdown is nowhere reflected robustly than in the set of data released by the authorities recently on the invariable flow of investment funds, both Foreign Direct Investment (FDI) and Foreign Portfolio Investments (FPIs). This reflects the solid and steadfast confidence of foreign investors in the fundamentals of the domestic economy.

A just-published report by the Department of Economic Affairs makes a justifiable point that “despite the surge in infection case of Covid-19 that has been efficaciously addressed through testing, effective isolation and contact tracing of those infected, reinvigoration of public and private healthcare resources, ensuring of Covid-appropriate behaviour and targeted approach to vaccination in districts reporting large numbers, the economy is resilient with “sustained improvement” in a majority of high- frequency indicators including FDI inflows and exports and imports.

The Department of Industrial Policy Promotion (DIPP) said that India’s total foreign direct investment inclusive of reinvested earnings during the ten months of fiscal 2020-21(April to January) rose by 15 per cent to 72.12 billion US dollars over a similar period of the previous year. It attributed among others, the measures set in motion by the government on the fronts of FDI policy reforms, investment facilitation and ease of doing business by removing roadblocks in policy and procedures, adding that “it is the highest ever for the first ten months of a financial year and 15 per cent higher compared to the first ten months of 2019-20.

Meanwhile, the Ministry of Finance, tracking the inflows of Foreign Portfolio Investment (FPI) into the Indian equity markets said that such flows amounted to two lakh and seventy-four thousand and thirty-four crore of rupees (Rs 2,74,034) during the fiscal year 2020-21 that ended on March 31, 2021. It pertinently noted that the whopping and wholesome FPI flows came close on the heels of faster than expected economic recovery by multiple and staggered tranches of innovatively designed stimulus packages to the stakeholders in the real sectors of the economy.

The superior performance on the foreign funds flows also owed itself to the major policy initiatives and proactive postures of the government that were primarily designed to improve ease of access and investment climate for FPIs in the recent past. These encompass, among others, simplification and rationalization of the FPI regulatory regime, swift rollout of the online Common Application Form (CAF) for registration with the Securities and Exchange Board of India (SEBI), the regulator for the stock markets., allotment of PAN and opening of bank and Demat (dematerialized) account.

The increase in aggregate FPI investment limit in Indian companies from 24 per cent to the sectoral cap has been a major spur for enhancing the weightage of Indian securities in major equity indices, both passive and active, into Indian capital markets.

Interestingly, Japan has been leading the list of investor countries with 29.09 per cent of the total FDI equity inflows during January 2021, followed by Singapore with 25.46 per cent and the United States with 12.06 per cent. Computer software and hardware emerged as the top sector with close to 46 per cent of the total flows, followed by construction (infrastructure) activities at 13.37 per cent and services sector at 8 per cent respectively.

In all, the tangible signs of burgeoning confidence in the Indian economy with the rising flows of foreign funds to bolster domestic economic activities to get a foothold in what is veritably the world’s biggest markets of millions of consumers are also predicated on the optimistic prospects for the Indian economy. The growth forecast in the new fiscal year for India is pegged above 10 per cent by the International Monetary Fund (IMF), the World Bank and with the country’s central bank likely to continue its accommodative monetary policy in its forthcoming meeting on Wednesday, growth impulses would remain strong and reinforced, placing the confidence of the investors, both domestic and foreign, to bet on India safely and securely, policy analysts contend.

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