India took home maximum foreign money in 06: report

New Delhi, May 30 | Updated: May 31 2007, 05:30am hrs
India cornered a major portion of $40.1 billion net capital inflows to South Asia in 2006, the World Bank said, but cautioned that more restrictive policy conditions in the country would slacken investment growth.

World Bank's Global Development Finance (GDF) 2007 report also warned that weaker private consumption and government spending as well as weakening of external demand would contribute to a slowdown in GDP growth to 7.8% and 7.5% in 2008 and 2009 respectively. India's GDP growth in 2006-07 was 9.2% and total FDI inflow from April 2006-March 2007 was $15.7 billion.

FDI to developing countries increased to $325 billion in 2006, equivalent to roughly one-fourth of worldwide FDI flows of $1.2 trillion. The bank highlighted that most of the FDI inflows into India were concentrated in the service sector, telecommunications in particular, in response to liberalization policies designed to attract FDI, such as easing ownership restrictions.

FDI outflows from India are also on the rise due to increasing cross-border M&As by Indian companies, mainly in high-income economies, the report added. For instance, since 2004, FDI flows from India to the UK exceeded flows from the UK to India, it said. In this regard, the bank made a special mention of Tatas acquiring Anglo-Dutch steelmaker Corus for more than $10 billion in early 2007.

Moneys Worth

FDI to developing countries increased to $325 bn in 2006, equivalent to one-fourth of $1.2 trn FDI inflow worldwide
Reserve accumulation picked up in India in 2006, by $39 bn, to reach $171 bn

In addition, the World Bank said reserve accumulation in India picked up significantly in 2006, by $39 billion, to reach $171 billion, 6% of the total stock of reserves held by all developing countries. While in 1990 India had to pledge gold to purchase foreign goods, the scene is drastically different in April 2007 as Indias foreign exchange reserves crossed $200 billion, which is more than what is needed to meet the import bill for over 12 months.

The World Bank said given the strong rise in imports, foreign reserves in terms of months of import cover (for merchandise trade) declined to 11.2 months on average for 2006 from 13 in 2005. Despite these factors, sustained high government deficitscurrently running about 6.5% as a share of GDP in India, and strong international capital inflows are expected to keep domestic demand expanding rapidly, albeit not as strongly as in recent years.