Investment outflows slip 81% on weak global climate

Contract to $1.75 bn during FY15, against $9.40 bn in April-March 2013-2014

The global slowdown has not only adversely impacted the country’s exports but also outbound investments. The foreign investment outflows from India contracted 81.38 per cent at $1.75 billion during 2014-2015, compared to $9.40 billion in April-March 2013-2014.

The biggest fall was witnessed in the foreign direct investment (FDI) segment that dropped by 68.04 per cent to $3.96 billion in April-March 2014-2015 compared to $12.42 billion in the corresponding period of 2013-2014, according to the Reserve Bank of India data.

Similarly, portfolio investments from India also fell by 62 per cent to $80 million in 2014-2015 from $207 million in 2013-2014.

“FDI by Indians outside has come down because of increased confidence of Indian investors to invest in India rather than investing outside India,” a top official in the Department of Industrial Policy and Promotion (DIPP) told Business Standard.

However, according to experts and economists, there are mainly two reasons that explained why Indian investors did not look outside.

 

First, while they agreed that the main reason why Indians preferred to remain at home was because the business environment improved substantially within the country but only in terms of sentiments, they also pointed towards the ailing global economy that failed to throw up potential opportunities.

“Even if the investors were enthused to look inwards, the domestic manufacturing scenario has not seen any improvement. Globally, the investment scenario was not much interesting. China also slowed down their investment activities. The global investment cycle itself is reeling under a downturn and needs to be revived. This trend might continue in the present fiscal as well with a reduced investment appetite by the private corporate sector,” said D K Joshi, chief economist, CRISIL.

Production in volume terms rose 2.3 per cent in 2014-15 despite a low base of (-) 0.8 per cent in the previous year.

According to a report by CRISIL on investment cycle, even though private consumption demand rose from 5.5 per cent in 2013 to 6.2 per cent in 2014 and 7.1 per cent in 2015, India Inc. remains cautious on fresh investments. As a result, the investment outlook for FY16, hinges on increased public investments.

Agreed A Didar Singh, secretary general, Federation of Indian Chambers of Commerce and Industry, who believed that the reduced outflows are the result of a lower investment appetite.

“A lot of the markets where our investments were earlier headed are now themselves reeling under slowdown. Besides, with several projects getting stuck, the capex plans got impacted,” he added.

Despite a minor scale-up in fixed capital investment growth in this financial year, there has been no notable turn in the capital expenditure (capex) or investment cycle. Investments are trailing gross domestic product (GDP) growth because of which India’s investment to GDP ratio has fallen to 29.8 per cent in 2014-15 from 31.9 per cent in financial year 2012-2013 even as GDP growth picked up from 5.1 per cent to 7.3 per cent in the corresponding period, stated CRISIL.

However, Dev Raj Singh, executive director, EY, attributed the massive slow down in the outbound investments by Indians to Make in India campaign as well as a slow down in global demand.

“Indian investors are seeing that today there is much more opportunities in the country with campaigns like 'Make in India' promising to improve the country’s business environment.  Apart from this a lot of them might be in a wait and watch mode with a grim global economic scenario,” highlighted Dev Raj Singh, executive director, EY.