Robust FII inflows look difficult; focus on increasing FDI: Assocham

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New Delhi | Updated: Jun 14, 2015 11:43 AM

Continuation of robust inflow of foreign investment, led by FIIs in the stock market, looks quite difficult this year as sentiment towards the Indian market may remain muted in the coming months, says Assocham.

Assocham on FDI, FIIIt said while the FDI inflows may improve in the current year, the FII inflows may even go lower. (Reuters)

Continuation of robust inflow of foreign investment, led by FIIs in the stock market, looks quite difficult this year as sentiment towards the Indian market may remain muted in the coming months, says Assocham.

To overcome such a situation, the industry body has suggested “a major offensive” to attract foreign direct investment (FDI), especially in infrastructure and manufacturing sectors.

“The total foreign investment had risen by over 180 per cent in the fiscal 2014-15 to USD 73.6 billion over the previous financial year. It was led by foreign institutional investors (FIIs) who were in a state of euphoria about the change of the government headed by a decisive leader,” noted the industry body.

“The FIIs poured in USD 40.9 billion in FY-15, while as much as USD 32.6 billion had come in by way of foreign direct investment (FDI). That kind of growth is just not on the horizon,” noted the industry body.

It said while the FDI inflows may improve in the current year, the FII inflows may even go lower.

“At least in the next two quarters, there does not seem to be any major trigger to attract the FIIs back to India. The fatigue factor towards emerging markets, rise in dollar value and the possibility of interest rate hike in the US earlier than expected would all combine to keep the inflows of FIIs into India subdued,” Assocham pointed out.

Coupled with the projections of lower foreign investment, outlook for merchandise exports also does not look positive. The merchandise exports may remain more or less flat at around USD 310 billion this year as well as was the case in 2014-15, the chamber said.

“Under these circumstances, the external sector outlook does not look rosy for the current financial year. The only saving grace is that the imports would also remain subdued easing off the pressure that could have otherwise come about on the rupee value against dollar,” Assocham Secretary General D S Rawat said.

“Under the given circumstances, a major offensive must be launched to woo foreign players in FDI projects, especially in building infrastructure and manufacturing both greenfield and brownfield. Some of the losses of FIIs should be sought from the FDI, though hardcore efforts will have to be made in this respect,” he added.

According to the industry chamber, the foreign exchange reserves too, under the given context, may not keep the kind of pace which was witnessed last year.

“While in the last fiscal the accretion to the foreign exchange reserves was to the tune of USD 61.4 billion, four times the level in 2013-14, the feat of 2014-15 may not be repeated in the current year,” Assocham said.

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