What Was Our FDI Again?

How much foreign direct investment (FDI) did India get in 2015? It could be anywhere between $38 billion and $63 billion, depending on the data pool one refers to and the specifics therein. The euphoria surrounding India's attractiveness as a preferred global FDI destination has, however, thrown up conflicting numbers. Therefore, clarity is required when it comes to the country's FDI disclosures.

Last week, the US India Business Council (USIBC) said India attracted $63 billion to become the top global FDI destination in 2015. The industry lobby group credited Prime Minister Narendra Modi for creating a globally competitive investment climate in the country to trigger the inflow.

The 2015 estimates of the United Nations Conference on Trade and Development was $59 billion, almost double of what it was a year ago. It said India was among the leading countries, with only the US, China and Singa-pore attracting more FDI. Commerce ministry statistics says India registered the highest ever FDI inflow of $51 billion between April 2015 and February 2016. For a government that is too eager to publicise its achievements, this is certainly a feat to be proud of. Predictably, the government showcased the increased inflow as proof of the success of its "ease of doing business" policies and "Make in India" push.

But what often remains hidden in the aggregate numbers is the unpleasant fact that the actual FDI numbers - investments that result in capital expenditure, job creation and additional wealth generation - do not get reflected.

For instance, the reason why India figures right at the top in the USIBC ranking is because the FDI "attractiveness" ranking is not based on actual foreign currency flows, but on the basis of country-wise FDI commitments made by corporations during a particular year. India must have received the largest chunk of commitments, but all that need not eventually translate into FDI inflow. Another grey area is the nature of the fund flow. For example, of the seven FDI proposals worth `518 crore that India approved on April 8, bulk of the amount, Rs 475 crore, was meant to go as equity investment to one company - for subscribing equity shares and purchase shares from existing shareholders of Concord Biotech Limited. In fact, to a response in the Parliament in May, the commerce ministry revealed that of the $51 billion it considered as FDI inflow for the first 11 months of 2015/16, only $37.53 billion was actual FDI. The rest was in the nature of foreign institutional investments (FII).

India's FDI figures include equity, re-invested earnings of foreign companies operating in the country, loans from foreign entities to their Indian subsidiaries and merger and acquisition payments, among others. Even among the sectors that attracted FDI, services including e-commerce activities remained the favorite. Computer software and hardware, and trading also accounted for substantial inflows. Manufacturing, as a standalone sector was not the top priority.

In fact, some studies say that of the total FDI inflows into the country, only half can be realistically termed as FDI. That said, it is also true that the Modi Government has been simplifying and rationalising procedures to attract more FDI. While foreign investment is welcome, it would benefit a lot if the government segregates the nature of investments and promote the ones that are truly aiding economic growth. FDI for FDI's sake may not justify the euphoria.