• HDFC
• 30 Aug 2018
• Knowledge Centre

HDFC, Tester

India witnessed a 23%rise in foreign direct investment (FDI) at US$12.75 bn in the April-June quarter in the current fiscal, according to data from the Department of Industrial Policy and Promotion. Increased FDI inflows came in from various geographies:

 

• Singapore: US$6.52 bn,
• Mauritius: US$1.5 bn, 
• Japan US$874 mn,
• Netherlands: US$836 mn,
• UK: US$648 mn, and 
• US: US$348 mn.

 

FDI inflows in the same quarter of the previous fiscal stood at US$10.4 bn, DIPP data showed.

 

Sector-wise Breakup

 

The sectors that received maximum foreign investment during this quarter include:

 

• Services: US$2.43 bn,
• Trading: US$1.62 bn,
• Telecommunications: US$1.59 bn,
• Computer software & hardware: US$1.4 bn, and 
• Power: US$969 mn.

 

The increase in FDI is crucial in this fiscal, as an increase in the import bill is likely to widen the country’s current account deficit (CAD).

 

According to an SBI research report, India’s CAD is likely to touch 2.8% of the country’s GDP in the current financial year. This is largely owing to a surge in crude oil prices and moderate growth in exports. “Against the backdrop of rising oil prices and lukewarm export growth, current account deficit is expected to reach 2.8% of GDP in FY19,” the report stated.

 

Looking Back

 

Trade deficit jumped to US$18 bn in July 2018 on account of the country’s tepid export performance in the backdrop of a higher import bill. The CAD is still expected to be largely financed by non-debt creating capital inflows (one where there is no direct repayment obligation), which constitute ~44% of the total capital flows.

 

A report carried by a wire service says that, in July 2018, the country’s trade deficit stood at US$ 18 bn. India’s annual oil imports stand at 57.4%. A country’s current account deficit is financed by non-debt capital inflows, which include the Foreign Direct Investments (FDI) and Foreign Portfolio Investments (FPI). FDI flows involve the buying or establishing a company or a business in foreign nations. On the other hand, Foreign Portfolio Investment (FPI) includes investing in foreign stocks and assets. FDI and FPI constitute 44% of the total cash flows.