FDI in India sees first slump since March '03

NEW DELHI: India's foreign direct investment is headed for the first drop since the year ending March 2003, hindering a bid to match China’s surging economy, even as overseas money poured into Indian stock and bonds at a record pace.

Data show FDI fell 24% to $19 billion between April and November compared with the same period a year earlier. Inflows into equities and bonds jumped 48% to $32.8 billion during the same period, according to the latest data from the Reserve Bank of India. The government says it needs to spend $1 trillion on roads, ports and other utilities over five years to close in on China.

The RBI said the fall in direct investment was caused by companies facing hurdles obtaining land, gaining environmental clearance and poor infrastructure. Construction, mining and business services recorded the biggest drops in investment, the data show.
“All economies want to avoid fly-by-night investors who invest, reap the benefits and move on to other countries,” said Alex Mathews, head of research at Geojit BNP Paribas, based in the southern city of Kochi. “A growing economy needs both strong domestic and foreign direct investment.”

By contrast, most Asian nations reported a rise in FDI in calendar year 2010, according to data and forecasts compiled by the United Nations. Investment surged 163% in Indonesia, 123% in Singapore, 29% in Hong Kong and 6% in China, the data show. China’s economy, about the same size as India’s $183 billion in 1980, has swelled close to $5 trillion, almost four times its neighbour.

Billionaire hedge fund manager George Soros said India is vulnerable to so-called “hot money” inflows, according to an interview published January 28 in ET.

RBI has raised interest rates seven times in the past year to stem inflation, making it an attractive destination for the so-called carry trade, where investors take funds in a country with low borrowing costs and put them in one with higher rates.