Repatriation by foreign companies jumps to $11 bn in 2011 from $3 bn in 2009

Mumbai: Domestic uncertainties like policy flip-flops , combined with global risk aversion, is prompting foreign companies to increasingly repatriate their investments , categorized as foreign direct investment ( FDI), out of India during the last three years ended December 2011.

Compared to FDI repatriation (also termed as FDI debit) of a few million dollars between 2000 and 2008, this figure jumped to $3.1 billion in 2009 and further to $10.7 billion in 2011, a report by global financial powerhouse Nomura said.

This is alarming because FDI flows, which comes under a country’s capital account , are more stable compared to portfolio flows. An outflow from this side of the overall balance of payment (BoP) is perceived as a serious issue for policy makers. Although total FDI flows are still in the positive territory, estimated at about nearly $20 billion for the year 2011-12 , increasing FDI debit could turn out to be, among other issues, another drag on the strength of the rupee.

“FDI into India has risen exponentially since the 2000s. However, over the last three years some of this money is being repatriated,” noted the research report by Nomura analysts Sonal Varma and Aman Mohunta. “Global deleveraging may have forced companies to sell their Indian assets and repatriate funds to their home country. At the same time, domestic push factors such as slowing potential growth, the high cost of doing business (in India) and regulatory uncertainty have weakened the investment climate, likely causing this erosion. This is not a good sign,” the analysts said.

“FDIs are seen to be stable money, which (among a host of positives) also leads to more innovations and better technology transfer into the country which combine to lead to productivity gains,” Varma told TOI. More than its impact on the trajectory of rupee, “this (FDI outflows) is a bigger issue since it affects growth,” Varma said.
Since touching a high of 9.8% during the quarter ended September 2009 , India’s GDP growth has slowed to 6.1% in the quarter ended December 2011.

The country’s current account has been is in the negative territory for the last few years, while during the quarter ended December 2011, its balance of payments also entered the negative zone with a deficit of $12.8 billion, government data showed. During the year ended March 2011 India’s current account was at $52.2 billion which is now estimated to top $73 billion when the final data for the year ended March 2012 are published, a report by Barclays Capital showed.

Global risk-related issues and the recent government decisions that hindered flow of foreign money into India are likely to have affected FDI and also foreign institutional investments into India. “However, foreign selling of equities and bonds has been muted, particularly compared with other EM (emerging market) Asia economies ,” the Barclays Capital report noted. “In the case of equities this has been partly due to the “sticky” nature of M&A-related inflows and limited foreign ownership of Indian equities,” it said.