The Telegraph
Since 1st March, 1999
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Foreign direct funds dry up

New Delhi, Sept. 3: India’s FDI inflow has been more than halved from $1.2 billion during April-July last year to $529 million during the same period this year.

On the other hand, the country has emerged as a big investor worldwide investing as much as $1.05 billion last year and $1.4 billion the year before. Much of the money has been spent on investments by IT and pharma companies abroad.

Top finance ministry officials say while the war in Iraq and terror attacks worldwide did affect FDI inflows initially, “those are no longer factors.” “The feel-good factor based on good monsoon and a strong stock market rally should translate into greater investment flows into India,” said the government’s chief economic advisor Ashok Lahiri.

Lahiri said; “The trend is already looking up. In May, we got just $58 million in FDI compared with $154 million last May, but by July this gap had been reversed. We got $180 million compared with $154 million last July.”

“There is a lumpiness in FDI patterns which might have been affecting flows,” the former Delhi School of Economics don, who admitted the government had not worked out the logic for the fall as yet.

Saumitra Choudhury, chief economist for ICRA, however, pointed out, ”We know FDI has been falling since last September.”

Most of the money coming in over the last few years was coming into investments in IT and IT-enabled services or else in telecom.

In fact the biggest beneficiary from foreign direct investment into India has been electronics, IT and IT-enabled series which together accounted for 14.2 per cent of the $33.5 billion inflow since 1991. Telecom was a close second accounting for 12.8 per cent. “Those investments have run a cycle; it’s drying up. You can’t keep on setting up IT-enabled centres.”

The last such cycle saw an auto sector led FDI boom in 1997 with inflows topping $3.5 billion. Huge investments flowed into automobile plants in the country with virtually every auto-maker from developed world giants Fiat and General Motors to Korea’s Hyundai rushing in to invest. “All that is over. Now we have to find a new growth area,” pointed out Choudhury.

The government agrees. “Telecom has already garnered a lot of money. We hope food processing will witness a revolution here attracting huge investments,” said Lahiri.

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