‘Record’ FDI Inflows, Yes, Cause For Celebration, No

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

Higher FDI inflows in 2020-21

• India has attracted the highest ever total FDI inflow of S.$81.72 billion in 2020-21, and it is 10 per cent higher than 2019-20.
  • On the contrary, global FDI inflows in 2020 had declined by 42% over the level in 2019, and inflows to developing countries had fallen by 12%.
• The credit for this record level of inflows was given to FDI policy reforms, investment facilitation and ease of doing business.

Issues with the FDI inflows profile:

• Net of repatriation declined: According to RBI report, the net of repatriation/disinvestment, FDI inflows had declined by 2.4% in 2020-21.
  • This was due to a 2% increase in repatriation/disinvestment, which had reached a record level of U.S.$27.0 billion.
• Increase in the share of Foreign Institutional Investors (FIIs): RBI cites a 69-fold increase in participation by FIIs, totalling the U.S.$38 billion.
• Skewed distribution: Department for Promotion of Industry and Internal Trade database shows that three Reliance Group companies, together received 54.1% of total equity inflows during three quarters of 2020-21.
  • RBI Annual Report shows without the top five FDI deals, FDI inflows during 2020-21 would have declined by about a third.
  • The lower incidence of transactions points to the underlying weakness in FDI inflows.
• Acquisitions behind major inflows: A major part of funds to Reliance Industries was meant to facilitate withdrawal of its investments already made in the form of Optionally Convertible Preference Shares.
  • E.g. Facebook entry in the Jio platform holding 9.9% shares and Google holding 7.7% shares.