Non-debt capital inflows ratio jumps to 43% in '90s

RBI REPORT ON CURRENCY & FINANCE: 2002-03

The proportion of non-debt capital inflows into the country has increased from around five per cent in the latter half of 1980s to around 43 per cent during 1990s.

The net capital inflows have more than doubled from an average of $4 billion during 1980s to around $9 billion in 1993-2000.

According to the Reserve Bank of India's report on currency and finance, the percentage of non-debt creating inflows in 1990-91 was at 1.5 per cent while that of the debt creating inflows was at 83.3 per cent.

The percentage changed in 2002-03 to 46.6 per cent non-debt creating inflows and a negative 10.6 per cent debt creating inflows.

According to the report, inflows into the country from Mauritius and the US dominated during most of 1990s.

Many companies routed their investments to India through Mauritius to avail of the tax benefits under the bilateral tax treaty.

The most favoured industries have been engineering and chemicals and allied products in the 1990s.

However, of late the services sector and computers have been attracting large FDI inflows.

In 2002-03 FDI inflows from Mauritius was at $534 million followed by the US at $268 million and the UK at $224 million.

The services sector received the highest inflows of around $509 million followed by computers at $297 million and engineering at $262 million.

FDI inflows to China is, however, is 10 times that of India.

The FDI inflows into China in 2002 was at $52.7 billion as against $4.7 billion inflows into India.

According to the report, India and China focused on different types of FDIs and pursued different strategies for industrial development.

India encouraged FDI only in higher technology activities while China favoured export-oriented FDI concentrated in the manufacturing sector.

China's FDI-driven merchandise exports grew at an annual rate of 15 per cent between 1989 and 2001.

In 1989 foreign affiliates accounted for less than 9 per cent of China's exports which by 2002 accounted for half of the exports.

The product reservation policy for small scale industries in India has adverse implications on exports growth as FDI is not permitted in small scale industries reserved products.