- In October 2007, Keyman Financial Services issued Rs 75 crore of shares to a foreign investor. Eight years later, this was reported as inflows of Rs 7,500 crore in India’s FDI statistics.
- Serene Senior Living was reported as having received $2.3 billion from the US in FY16. Its filings don’t reflect these inflows, don’t talk of projects in India and its paid-up capital was just Rs 1.5 crore in FY16.
Instances such as these abound in a study of India’s foreign direct investment (FDI) by KS Chalapati Rao and Biswajit Dhar of Institute for Studies in Industrial Development. While the authors refuse to comment on whether all errors in India’s FDI overstate it — some examples of big understatement are given — this means India’s FDI data will probably be viewed with as much scepticism as its GDP data; a final view on whether the FDI numbers are overstated or understated will require detailed analysis of each inflow into the country.
Though the official narrative is that the rising FDI is a sign that Make-in-India has got a leg-up because of friendly investment policies, the authors say “a good portion of the increased (FDI) inflows during 2016-17 may be attributed to reporting of older cases (including duplicate reporting), a case of past omissions bolstering current inflows” (see graphic). Also, while FDI inflows have been rising in absolute numbers, it is more meaningful to juxtapose this with the size of the economy. As a proportion of GDP, while FDI peaked at 3.5% of GDP in FY08, FY18 inflows were a smaller 2.4%, lower than even FY17’s 2.6%.
In the case of DoCoMo, which had a high-profile joint venture with Tata Teleservices, the authors found the FDI statistics reported a $1.5-billion investment by it in FY17, at a time it was in the process of exiting the country. There were, naturally, no entries in TataTele’s filings with the ministry of corporate affairs in the same period. These shares, it appears, were allotted between March 2009 and May 2011.
In the case of Triguna Hospitality, similarly, while inflows of Rs 10,711 crore have been shown in the FDI data, the authors point out that the firm’s paid-up capital and reserves were just Rs 553 crore in the year this money was supposed to have come in. In other cases such as Ford and Walmart’s India investments, the authors conclude there has been some double counting.
The distortions, however, also go the other way, and understate FDI inflows. So, in the case of Vodafone, the study points out that out of the $8.4 billion invested during March 2015-September 2016, around $5.9 billion was reported by the department of industrial policy and promotion DIPP only after a year — that is, for the July-September 2017 quarter. Had the reporting been prompt, equity inflows in 2016-17 would have been inflated by 13.6%, with a corresponding dip in the inflows reported for 2017-18.
The authors acknowledge that the data infirmities are a legacy, which the current government inherited. Recalling the delegation of compounding powers for delayed reporting to the Reserve Bank of India’s regional offices just before the current government assumed office, they however added that incorrect and duplicate entries had a higher share in the official data entered between May 2014 and March 2017 compared to the April 2012-April 2014 period.
After regrouping the data according to the 25 Make-in-India thrust sectors, the authors conclude, “Whichever way one looks at it, the share of manufacturing sector fell substantially…and was concentrated heavily in automotive and allied industries, which in any case have been among the top recipients for many years.” Also, according to them, the quality of FDI into India is also doubtful.
A large share of the inflows relate to acquisition (brownfield) variety that just supplant existing equity capital, rather than add to it. “While the increase in equity inflows during 2016-17 was $3,589 million, the increase on account of acquisition of existing shares was as much as $3,228 million.” The high share of repatriations (brought back) and disinvestment in FDI is also a cause for concern. In 2016-17, a third of inflows were balanced by sell-offs, says the study.