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FDI inflow gets accounting boost

New Delhi/Mumbai, June 30: The estimate of foreign direct investment (FDI) inflows into the country has been raised by nearly $ 2.1 billion from $ 2.6 billion to about $ 4.7 billion for the year ended March 31, 2003.

According to an official statement issued today, the fresh estimate is based on the new system of accounting adopted by India modelled on the “international best practices”.

Similarly, the revised estimate of FDI outflows from the country has been more than doubled to $ 1,059 million from the earlier $ 459 million for the year.

The earlier estimates were based only on equity investment by foreign companies. The new method of accounting includes “reinvested earnings” and “other capital” as two additional categories of investments made by these foreign companies. As a result, the FDI estimate has shot up. While reinvested earnings refer to retained earnings of FDI companies, “other capital” covers inter-corporate debt transactions between related entities. Short-term and long-term inter-corporate debt, trade credit, suppliers credit, financial leasing have been included in under the “other capital” head.

The new method of accounting has also been adopted for Indian investment abroad. These figures comprised mainly the equity component as was the case with FDI inflows and were hitherto reported in the balance of payments statistics. The decision to switch over to the new system had been taken jointly by the commerce ministry, the ministry of finance and the RBI in May 2002. A monitoring group was then set up to implement the decision.

Following these changes, India’s current account surplus for the year ended March 31, 2002, would come down to $ 782 million from $ 1.4 billion, the central bank said.

The RBI also released statistics on the balance of payments for the fourth quarter (January-March period) and for the whole year (2002-03). Based on these figures, the country’s trade deficit increased to $ 2.7 billion in January-March 2003 compared with $ 2.3 billion during same period last year.

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