Here's a recent piece on FDI decline and FII upsurge in India:
In 2010-11, inbound FDI into India fell by as much as 28%, the second consecutive year of decline and the first such large decline since the opening up of the economy in 1991-92. As a result of this decline, the present level of $27 billion of FDI inflows is the lowest in four years.
A large part of the progress made in FDI inflows over the boom years has now been reversed, with flows down by almost 29% from their high in 2007-08. This trend, more than just being odd, is also worrying when seen in the context of the fact that the past four years cover the recessionary period as well.
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The decline in FDI in 2009-10 could be explained by the fact that it was a year when recessionary effects were visible in the global economy. All BRIC countries (Brazil, Russia, India and China) saw declines in FDI flows during that year.
According to the United Nations Conference on Trade & Development (Unctad), flows into China fell by over 12% and to Russia and Brazil by as much as 49% and 42% from the previous year.
However, a number of emerging markets have shown substantial recovery in 2010. The RBI pointed to Unctad figures to show that countries like China, Brazil, Mexico and Thailand had in 2010 shown a rebound in FDI of between 6-53 percent. Indonesia apparently showed a three-fold rise from the previous year.
In India itself, FII flows have been on the rise over the past two years on an annual basis, with only 2008-09 being a year of sharp outflows. In fact, the outflow of $15 billion was more than made up by inflows of $29 billion — their highest ever — in 2009-10. This level was largely maintained in 2010-11 as well, with a small increase.
Both these factors go on to show that the decline in FDI into India in 2010-11 is not the result of a weak global situation or investor risk-aversion. The causes really lie elsewhere.
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FDI flows showed a dismal performance in almost every month of the previous financial year, with May being the only exception. By the end of the third quarter, it became clear that FDI inflows would be nowhere close to what they were the year before.
The RBI highlighted this in its quarterly ‘Macroeconomic and Monetary Developments (MMD) study released in January 2011 and suggested some reasons for the trend as well.
According to the bank, the “major reason for the decline in inward FDI is reported to have been the environment-sensitive policies pursued, as manifested in the recent episodes in the mining sector, integrated township projects and construction of ports, which appear to have affected the investors’ sentiments.”
The Ministry of Environment had recently questioned the ecological viability of the Korean steel giant, Posco’s proposed plans in Orissa, which could be one of India’s biggest FDIs ever.
The MMD review further goes on to observe that there are other reasons for the decline as well, such as “persistent procedural delays, land acquisition issues and availability of quality infrastructure”.
Indeed, delays in decision-making are visible in sectors like defence and multi-brand retail, discussions on which have been long in the works. The Department of Industrial Policy and Promotion (DIPP) had floated a discussion paper on defence in May 2010 and on multi-brand retail in July 2010.
Feedback on these was received by parties interested in the sector, but a decision on allowing FDI into these sectors is still nowhere in sight.
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This is corroborated by the numbers. Both telecom and real estate have seen an above-average decline in FDI flows during the year. While flows into telecom declined by 35% to $1.6 billion, the flows to housing and real estate declined by as much as 60% to $1.1 billion...
Hot money is flowing, but rest of India story has gone cold | Firstpost