FE Editorial : Where’s the FDI?
The Financial Express: Jan 25 2013, 23:38 IST
Going by reports put out by broking houses, finance minister P Chidambaram appears to have had fairly successful roadshows in both Singapore and Hong Kong. Indeed, the FII inflows data put out by RBI confirms this—from a mere $443 million in April-November FY12, FII inflows jumped to $11.2 billion in April-November FY13 (in January, which still has some more days to end, FII inflows were $3.2 billion, or double what they in the same month last year). The problem, however, is that FDI flows have fallen dramatically over a period of time. So, while a little over 100% of India’s current account deficit (CAD) was financed by FDI inflows in FY08, this is now down to around a fourth. Net FDI flows for the April-November FY13 period, RBI data shows, fell to $14.7 billion from $19.6 billion in April-November FY12—for some reason, industry ministry data shows a 44% fall for the same period. In other words, while the rising CAD—from 3.8% of GDP in Q1FY12 to 5.4% in Q2FY13—is a problem, financing it has become even more of a problem. With the FDI share falling, the balance has been made up by volatile FII flows and trade credit—ECB flows have also risen considerably. While short-term debt has risen from 16.2% of total debt in FY07 to 22.5% in FY12, the share of volatile capital flows to reserves has risen, RBI’s Financial Stability Report points out, from 67.3% at the end of March 2011 to 81.3% at the end of June
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