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FDI spurt aimed at consumption story: Study

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Press Trust of India New Delhi
Last Updated : Oct 23 2015 | 12:47 AM IST
India remains far behind China in terms of ‘gross FDI inflows’ despite a recent spurt and funds largely coming into the consumption space such as e-commerce and not in manufacturing, says a new study.

Stating that the recent surge in foreign direct investment inflows may not give any boost to the government’s ambitious ‘Make in India’ campaign, the latest research report of leading brokerage firm Emkay Global said it is the ‘net FDI’ that has come down in case of China due to higher investments abroad.

"The recent media hype over India surpassing China and US in FDI inflows, is supposedly considered an affirmation of the success of 'Make in India'.

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"However, disaggregated data suggests that FDI flows have centred on exploiting domestic consumption, (and) rather than stimulating domestic manufacturing it is likely to have catalysed imports," it said.

The report further said that the gross FDI inflows to China far exceeded India by 3.6 times and China's lower net FDI is due to higher investments abroad.

"It will be premature to extrapolate the recent upsurge in FDI inflows as proof of revival in the investment cycle in India," it added.

Referring to a recent article in British daily Financial Times, Emkay said that the report cited date compiled by 'fDi Markets' to show that India has surpassed China and the US in FDI inflows with a greenfield FDI inflow of USD 31 billion in the first half of 2015.

In full year 2014, India ranked fifth after China, the US, the UK and Mexico. The 'Make in India' twitter handle also used this data to project evidence of success of this initiative.

"It is indeed true that there has been an increase in FDI inflows (including green field and cross border M&A) into India in the hope of a turnaround in growth outlook, and this bodes well for the external sector to withstand potential BoP (Balance of Payment) volatility arising from potential decline in global excess liquidity.

"However, we believe it will be premature to extrapolate the recent upsurge in FDI as concrete proof of a revival in the investment cycle or aiding the objective of 'Make in India' campaign. Further, the disaggregated data on FDI inflow and outflow (greenfield and cross border M&A) indicates a much different picture compared to the general perception," it said.

The study further said that "the headline numbers gloss over the message emanating from the details".

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First Published: Oct 23 2015 | 12:38 AM IST

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