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FDI

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Foreign Direct Investment

April, 2012

Introduction

Globalisation has been a buzzword for India Inc. The country enjoyed the second highest growth in foreign direct investment (FDI) inflows in the world during 2011, which eventually generated over two lakh jobs. The statistics mirror international investors' robust confidence in India's growth story, thus ensuring that the country sustains its global sheen.

According to the Ernst & Young (E&Y)'s 2012 India Attractiveness Survey, investors view India as an attractive investment destination. India stands as the fourth most attractive destination for FDI in the survey's global ranking. Domestic market's high potential driven by an emerging middle class, cost competitiveness and access to a highly qualified workforce are the major factors that has been the magnet force to attract global investors.

Key Statistics

  • FDI inflow rose by 55 per cent to US$ 28.4 billion during April-February 2011-12, while the cumulative amount of FDI equity inflows from April 2000 to February 2012 stood at US$ 246.6 billion, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP).
  • The sectors which attracted huge FDI inflows during the 11-month period of 2011-12 are: services (US$ 5.05 billion), pharmaceuticals (US$ 3.21 billion), telecom (US$ 1.99 billion), construction (US$ 2.52 billion), power (US$ 1.61 billion) and metallurgical industries (US$ 1.76 billion).
  • Mauritius infused highest inflows worth US$ 9.42 billion, followed by Singapore (US$ 5.07 billion), Japan (US$ 2.86 billion), UK (US$ 2.75 billion), Germany (US$ 1.54 billion), Netherlands (US$ 1.21 billion) and Cyprus (US$ 1.42 billion).
  • According to E&Y's recent transactions quarterly report, 202 mergers and acquisitions (M&A) deals worth US$9.4 billion were recorded during January-March 2012. On account of domestic consolidation, an increase of 22 per cent was witnessed in terms of number of deals, while the deal value enhanced 4.5 times over the October-December 2011 quarter. There were about 126 domestic deals which accounted for almost 63 per cent of the total reported deals and contributed 88.4 per cent of the total disclosed deal value. The US remained the most acquisitive nation recording 10 deals worth US$ 24.5 million, followed by Japan with seven deals worth US$ 352 million.
  • According to global consultancy firm Grant Thornton, India Inc witnessed 118 private equity (PE) deals worth US$ 2.01 billion during the first quarter of 2012. Sectors like e-commerce (Flipkart raising PE Funding of US$ 150 million) and domestic sectors focused on Indian consumptions story are attractive to investors (Godrej PE fund raise US$ 137 million fromTemasek).
  • According to the Reserve Bank of India (RBI)'s weekly statistical supplement, India's foreign exchange reserves or forex reserves stood at US$ 292.92 billion for the week ended April 6, 2012. Foreign currency assets aggregated to US$ 258.65 billion and the value of gold reserves stood at US$ 27.02 billion for the week. The value of special drawing rights (SDRs) was calculated at US$ 4.43 billion, and India's reserves with the International Monetary Fund (IMF) came out to be US$ 2.81 billion.

Important Developments

India received FDI worth US$ 2.21 billion in February 2012, registering an annual growth of 74 per cent. Cumulative inflows for April-February 2011-12 stood at US$ 28.40 billion.

Recently, the Indian government has cleared 22 FDI proposals amounting to Rs 586.137 crore (US$ 112.5 million). The approved major investments, that consulted with Foreign Investment Promotion Board (FIPB) as well, are enlisted below:

  • ShanthaBiotechnic's proposal of Rs 514 crore (US$ 97.26 million) to increase its foreign equity in brownfield pharmaceutical sector to facilitate activities of research, development, manufacturing and marketing of bio-tech products and other bio-generics.
  • Mahindra and Mahindra's proposal of Rs 25.99 crore (US$ 4.92 million) to set up a joint venture (JV) for developing, manufacturing and providing service support for radar systems and several defence electronic systems.
  • Springer Editorial Services' Rs 12.87 crore (US$ 2.43 million) proposal to increase foreign equity up to 100 per cent for publishing services, content development, content management and content outsourcing.