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FDI

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Foreign Direct Investment

October, 2011

Introduction

India enjoys a strong position as a global investment hub with the country registering high economic growth figures even during the peak of financial meltdown. As a result, overseas investors rested their confidence in the economy which eventually pushed foreign direct investments (FDI) in India. The fact is further consolidated by the excerpts of a research by Morgan Stanley which anticipates that India could attract FDI worth as much as US$ 80 billion in next 1-2 years. Around US$ 48 billion of FDI has been pumped in the Indian economy in the last two years.

Considering the pace of FDI growth in India, KPMG officials believe that FDI in 2011-12 may cross US$ 35 billion mark.

Key Statistics

  • FDI inflow rose by 50 per cent to US$ 20.76 billion during January-August 2011, while the cumulative amount of FDI equity inflows from April 2000 to August 2011 stood at US$ 219.14 billion, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP).
  • Services (financial and non- financial), telecom, housing and real estate, construction and power were the sectors that attracted maximum FDI during the first eight months of 2011 while Mauritius, Singapore, the US, the UK, the Netherlands, Japan, Germany and the UAE, among others, are the major investors in India.
  • India's foreign exchange (Forex) reserves have increased by US$ 858 million to US$ 318.4 billion for the week ended October 21, 2011, according to the weekly statistical bulletin released by the Reserve Bank of India (RBI). In the considered week, foreign currency assets went up by US$ 861 million to US$ 282.5 billion, while the gold reserves stood at US$ 28.7 billion.
  • Quenching its thirst for foreign assets, India Inc announced 177 M&A deals worth US$ 26.8 billion in the first nine months of 2011. For the quarter July-September 2011, inbound deals worth US$ 7.32 billion were registered as against the deals worth US$ 2.65 billion in the previous quarter; total value being largely accounted for by two mega deals - BP's US$ 7.2 billion acquisition of stake in Reliance Industries' oil and gas properties and Vodafone Group's purchase of partner Essar's 33 per cent stake in Vodafone Essar Limited for US$ 5.46 billion.

Important Developments

DIPP has proposed to permit 26 per cent FDI in domestic airlines, allowing foreign airlines to hold a stake in their Indian counterparts. The draft Cabinet note has been circulated for inter-ministerial consultation.

Indian government cleared 11 FDI proposals on October 10, 2011 entailing investment of around Rs 182.78 crore (US$ 37.53 million). Foreign Investment Promotion Board (FIPB), headed by Economic Affairs Secretary R Gopalan, gave its nod to the following major proposals:

  • Kolkata-based Pran Beverages’ FDI proposal for Rs 16.45 crore (US$ 3.38 million), to be pumped as foreign equity by a Bangladesh-based company.
  • Another Rs 39.36 crore (US$ 8.08 million) FDI proposal by DMV-Fonterra Excipients entailing induction of foreign investment to an extent of up to 100 per cent in the capital of a newly-formed Limited Liability partnership (LLP) firm involved in the business of manufacturing and sale of pharmaceutical excipients.
  • Further, Mumbai-based Ace Derivatives and Commodity Exchange’s proposal to transfer its equity shares to foreign institutional investors (FIIs), such that the holding of each FII does not exceed 5 per cent of the equity of the company. The proposal is worth Rs 10.53 crore (US$ 2.16 million).

South Africa-based Life Healthcare Group Holdings is buying 26 per cent stake in the healthcare arm of Max India, valued at Rs 1,984 crore (US$ 405 million). PE firms such as Warburg Pincus, Goldman Sachs and International Finance Corporation hold around 25 per cent stake in Max India while its Foreign Institutional Investors (FII) also include Temasek.