The revival in capital flows, which started in financial year 2009-10 and gathered momentum in the second quarter, has remained buoyant even in the third quarter, according to the second-quarter macroeconomic and monetary development report released by the Reserve Bank of India (RBI) today.
Net inward Foreign Direct Investment (FDI) continued to remain upbeat during the second quarter of 2009-10, reflecting relatively better growth prospects for the economy.
In the April-November period, FDI value increased marginally to $25 billion (Rs 1,13,750 crore) from $23.3 billion (Rs 1,06,015 crore) in the corresponding period last year.
| PHOENIX RISING Capital flows in 2009-10 so far ($ mn) | |||
| Component | Period | 2007-08 | 2008-09 |
| Foreign Direct Investment | April-Nov. | 23.30 | 25.00 |
| FIIs (net) | April-Jan.* | -12.10 | 24.70 |
| ADRs/GDRs | April-Nov. | 1.10 | 3.10 |
| ECB Approvals | April-Nov. | 13.00 | 12.30 |
| NRI Deposits (net | April-Dec. | 2.10 | 3.20 |
| * : Up to January 15, 2010., FDI: Foreign Direct Investment. FII: Foreign Institutional Investors', ECB: External Commercial Borrowings NRI: Non Resident Indian, ADR: American Depository Receipts; GDR: Global Depository Receipts Source:RBI | |||
Portfolio investments, too, continued their upward trend, mainly due to the revival in Foreign Institutional Investment (FII) inflows since the first quarter of 2009-10.
In the period from April 2009 to January 15, 2010, net FII inflows increased to $24.7 billion (Rs 1,12,385 crore) compared to an outflow of $12.1 billion (Rs 55,055 crore) in the same period last financial year.
Inflows under portfolio investment were led by large purchases of equities by FIIs in the Indian stock market and revival in net inflows under American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) due to resurgence in stock prices of Indian companies.
The value of ADRs and GDRs nearly tripled to $3.1 billion in April-November 2009 compared to $1.1 billion in the corresponding period last year.
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“The better than expected macroeconomic performance of India during 2009-10 and positive sentiments of global investors about India’s growth prospects are the factors primarily responsible for sustained capital inflows during the year so far,” the report said.
During the first half of 2009-10, net capital flows were high, mainly driven by foreign investment inflows, particularly reflecting the turnaround in FII inflows. In banking capital, net inflows under NRI deposits remained high.
Net inward FDI into India remained buoyant during April-September 2009 as compared to the level in the same period in 2008. During this period, FDI was channelled mainly into the manufacturing sector, followed by communication services and real estate sector.
Inflows under net external commercial borrowings (ECBs), however, remained low during the period. Short term trade credit recorded a net outflow during April-September 2009 as against a net inflow during the same period last year.