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

The Hindu     17th June 2021     Save    
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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.
QEP Pocket Notes