FDI inflows going strong, sustainability will be the key: Citi

NEW DELHI: Foreign direct investment (FDI) inflows into India remain strong this fiscal, but the country needs to sustain the trend in the next financial year, financial services major Citigroup said in a statement.

"While direct flows will likely hold, there is less certainty on private equity flows which comprise about 20 per cent of the FDI flows," said analyst Rohini Malkani in a report by the banking giant on India market watch.

Yesterday, government officials said India attracted USD 2.7-billion FDI in January, up 58.8 per cent from last year. The FDI inflows for the April-January period aggregated to USD 23.8 billion against USD 14.5 billion in the year-ago period.

"However,... the key would be the sustainability of these trends in FY 2010," Malkani said.

Citi said the government, in a bid to encourage inflows, introduced a number of policy changes last month. These include a relaxation of norms for downstream investment by foreign investors, making a clear distinction between activities of an operating, investing nature, or both, and laid down guidelines for either route of entry.

"While sectoral limits remain unchanged, these new guidelines essentially relax conditions for hierarchical foreign investment into many sectors, such as insurance, telecom, etc," Malkani added.