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.