While recent reports have said that India has outstripped China in terms of FDI, this is a limited view. In fact, China’s gross FDI inflows are far higher than India’s.
While
FDI inflows into ‘Make in India’ industries have increased, the export focus of
the campaign seems to have been diluted in favour of the Digital India sectors,
suggests a report by brokerage firm Emkay Global.
The report, published on Wednesday, also adds that
while recent media reports have said that India has outstripped China in terms
of FDI, this is a limited view. In fact, China’s gross FDI inflows are far
higher than India’s.
While $5.3 billion flowed into the computer software
and hardware sectors between December 2013 and June 2015, only $1.1 billion
entered the construction sector in the same period, the report finds, based on
data from the Department of Industrial Policy & Promotion (DIPP) and the
United Nations Conference on Trade and Development (UNCTAD).
In addition, the report states that although FDI
inflows into the automobile sector — a pillar of the Make in India mission —
have been growing, the trends suggest that they have been focussing more on
domestic demand rather than on export growth.
“While the automobile industry has been considered as
an important driver of the ‘Make in India’ campaign, evidence suggests that
most of the FDI flows, both historically and recent, have been aided to capture
domestic demand rather than exports, diluting the essence of the campaign,” the
report said. The argument made by the report is that although FDI in the
automobile sector has been growing reasonably healthily, the effect of this
increased investment has been felt more in boosting domestic sales rather than
in bolstering exports.
The report says the same trend can be seen in the
computer hardware and software sectors. While these sectors have seen a
substantial rise in recent FDI, this has not translated into a commensurate
increase in exports. “The profile of recent FDI flows… is indicative of
investments done to tap the domestic household consumption rather than catalyse
exports,” the report said.
This does not take into
account the gloomy demand scenario in the global economy, which has led to
Indian exports dipping across sectors. The report added that sectors that have
historically generated employment such as construction, have simultaneously
seen a sharp decline in their percentage contribution to FDI inflows.
Regarding the
recent media reports saying India has surpassed China in terms of FDI, the
Emkay Global report says that such an assertion may have been made on the basis
of “truncated data”.
“Net FDI flows
into China (inflows less outflows) averaged around $1 billion for the 12 months
ending August 2015, much lower than $2.9 billion for India. While truncated
data like these may have prompted some to conclude that India trumped China, if
we consider only the inflows (gross inflows), China has consistently maintained
a monthly average of around $10.5 billion, nearly 3.6 times of India’s $2.9
billion,” the report said.
The reason behind
the confusion, the report says, is that China’s FDI outflows far outstrip
India’s, and so a metric measuring inflows minus outflows and comparing
countries on the basis of that difference is an incomplete indicator of
investment activity.
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