Monday, April 13, 2009

Mauritius replaces US as India's biggest investment partner

13 Apr 2009, Economic Times [India], Tushar K Mahanti

Despite the global financial crisis, inflow of foreign capital to the country has increased sharply in 2008. The aggregate inflow of foreign direct investment (FDI) has more than doubled in 2008 — up 113.3% from Rs 65,495 crore in 2007 to 139,725 crore last year.

Interestingly, capital inflow from the US, which has suffered most from the financial crisis, has increased 107.3% last year against a rise of only 9.6% in the previous year.

The US’ share in India’s total FDI inflows, however, has declined further in 2008 as the total FDI inflow has grown at a higher rate.

The share of US in India’s total FDI inflow, for that matter, has been declining steadily over the years. From about 11.5% in 2000, US’ share in India’s total FDI inflow has come down to only 5.4% last year.

The fall in the US’ share in our aggregate FDI kitty has led to a major change in the order of India’s investment partners. Mauritius has become India’s biggest investment partner in the new millennium, replacing the US.

Its share in India’s aggregate FDI inflow has increased dramatically from about 19% in 2000 to 43.7% last year. Mauritius accounted for about half of India’s total FDI inflow in 2007.

But then Mauritius is not an isolated example. Unlike in the past, when India had to depend largely on the US for capital inflow, the new millennium has witnessed a drastic change in the sources of foreign funds.

The liberalisation has improved India’s rating abroad and investors all over the world are now keen to invest in India.

As a result, India has witnessed a massive change in the order of her investment partners too in the recent years.
Singapore, which had a less than 1% share in India’s FDI kitty in 2000, for example, has become the second-biggest source of FDI in 2008.

As much as 11.3% of the total FDI inflow in 2008 was accounted for by Singapore. In actual terms, the total capital inflow from Singapore grew by a huge 170.6% in 2008 over the previous year.

But more surprising has been the performance of Cyprus. Cyprus was a near non-entity in 2000 having just about Rs 3.1 crore worth of FDI approvals under its kitty — less than 0.1% of India’s total approved FDI.

In 2008 it accounted for 4.2% of our total FDI approvals. Actual inflow from Cyprus has increased 164% last year from Rs 2,204 crore in 2007 to Rs 5,825 crore in 2008.

There are a number of new entrants as well. Israel, Thailand, Saudi Arabia and South Africa, whose names did not appear in the FDI list prior to economic liberalisation, have gone on to increase their stake steadily over the years.

So far so good. But what must be causing concern is the fall in the share of developed nations. The share of UK, that increased to 15.5% in 2006, has fallen to 5% last year.

The good thing, however, is that despite the financial crisis the capital inflow from UK has increased sharply in 2008 — up 256% from Rs 1,967 crore in 2007 to Rs 7,008 crore. The share of UK in India’s total FDI inflow as a result, has gone up from 3% to 5% during the period.

Likewise, the actual investment as also the share in aggregate FDI inflow of Germany, Italy and France too have increased in 2008 over 2007. But then the rate of rise was not good enough to match their share during the early years of the current decade.

The share of Germany has declined from 2.7% in 2004 to 2.4% in 2008 while that of France has declined from 1.5% to 1.4% during the same period.