India’s net FDI flows are expected to rise further this fiscal to $ 38 billion on emergence of some “positive signs” such as regulatory easing in select sectors and reform measures initiated by the government, says a report.
“Net FDI flows in 2015-2016 stood at around $ 36 billion as against $ 31 billion for 2014-2015,” Kotak Institutional Equities said in a research report.
The significant improvement in foreign direct investment (FDI) profile is a reflection of progressive policy reforms and the recent regulatory liberalisation in select sectors and the country is likely to see a net FDI flow of $ 38 billion this fiscal, provided some of the announcements made in recent times materialise, the report added.
The country’s position in terms of foreign investment inflows is expected to further improve in the current year with some “positive signs” already emerging, it said.
In recent times, some of the major FDI announcements include Foxconn’s investment in projects valued at $ 5 billion in over the next 2-3 years, while GE and Alstom signed a $ 5.9 billion worth of joint venture with Indian Railways, which will boost railway infrastructure.
“Accordingly, we see upside to our base-case estimates of around 4.5 per cent growth in net FDI flows in fiscal year 2016-2017 ($ 38 billion) if some of the announcements made in recent times materialise,” Kotak Institutional Equities said.
The recent regulatory liberalisation in select sectors, like raising/easing the foreign investment limit for some sectors, and allowing many others through the automatic approval route has helped in the uptick in FDI levels.
The sectors that benefited from the relaxation include defense, real estate, construction, private banking, civil aviation, single brand retail and news broadcasting.
“With continued progress on the reform front in terms of legal, regulatory, governance and labor market, India’s position in terms of foreign investment inflows should improve further over time,” the report said.
While surge in e-commerce/startups helped software to be the top FDI equity recipient in calender year 2015, flows in the infrastructure sector have improved and the sustained trend could partly fill for lack of domestic capex appetite, the report said.
“Within manufacturing, India is yet to move beyond assembling units in the FDI value chain; however, we are seeing encouraging early signs with some foreign investments directed towards establishing full-fledged manufacturing facilities,” it added.