India’s FDI Drops 22% to $21bn Amid Fragile Global Recovery.

NEW DELHI: India recorded a 22 percent decline in foreign direct investment (FDI) to $21 billion last year as foreign investors remained cautious amid fragile global economic recovery, according to official data.

Countries such as Mauritius, Singapore, the US, the UK, Netherlands, Japan, Germany and the UAE were major investors in India, that attracted $27 billion FDI in 2009, revealed the industry ministry data said.

Saudi Arabia pumped in FDI worth $31.5 million between April 2000 and August 2010 into the Indian economy. The main sectors that attracted FDI were electrical equipments, food processing, automobile, computer software and hardware and telecommunications.

During the April-December period of the current fiscal, the combined FDI declined by 23 percent to $16.03 billion from $20.86 billion during the same period last year.

The main sectors that attracted FDI included financial and non-financial services, telecommunications, housing and real estate, construction activities and power, the data said.

India’s apex bank — the Reserve Bank of India (RBI) — is planning to set up a panel to find out the reasons for FDI slowdown and suggest ways to encourage it. The RBI initiative hints that, at least, it has recognized that a loss of investor confidence needs urgent attention if its effects are not to be felt more deeply in the months ahead.

The Indian government is working on setting up a simple and streamlined set of norms for all kinds of overseas investments into capital markets. But the country, where FDI fell to $25.88 billion in the 2009-2010 fiscal from $27.33 billion a year earlier, wants foreign investors to undergo a stricter scrutiny process, it was revealed.

The move is aimed at wooing direct investments from both individuals and institutions abroad into Indian equity and debt markets. Currently, the FDI comes through FIIs, venture capital and private equity funds.

Foreign investors are, however, likely to face tough scrutiny before being allowed to invest in Indian markets as per the new proposal, on which India's Finance Ministry is seeking feedback from key financial sector regulators such as Securities and Exchange Board of India and RBI.

The proposals would have no bearing on the FDI norms and would only apply to the portfolio investments, or those coming into the capital markets, according to sources.

The proposed measures, expected to be announced in the union budget, would focus on simplifying the process of foreign investment in capital markets and avoid uncertainty, delay or unequal treatment with regard to various investor classes, sources said.

The measures would largely be based on recommendations made by a high-powered working group last year on steps required for attracting foreign investments.

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.

The Indian government, which is working on ways to enhance FDI inflows, says it needs to spend $1 trillion on roads, ports and other utilities over five years to close in on China.

Source : arabnews.com