FDI into India declines in 2010-2011 According to the statistics released by India s Ministry of Commerce and Industry, the country has received US $19.43 billion in FDI during the last fiscal (April 10-March 11), compared to US $25.83 billion that came in the previous financial year. Although it is a significant dip (-25%), the government is confident that the trend will be reversed. Cumulative FDI received during the post liberalization period i.e. 1991-2011 were to the tune of US $146,319 million (Table 1). From the year 2000 up to 2002, investments into India grew 65% but declined during the subsequent two years from 2002 to 2004. 2004 to 2006, India once again experienced a surge in investments, growing 47% in 2004-05 and 72% in 2005-06 respectively. The year 2006-07 was an exceptional year with a 125% growth in FDI. The subsequent year was again very good, where investment gained 97%, followed by an increase of 11% during 2008-09. During the year of the financial crisis, Apr 09-Mar 10, foreign direct investments suffered a slight setback with declining a little over 5% over the previous year. Last year (Apr 10-Mar 11) FDI into India declined further by 25% to US $19,427 million. Table 1 Foreign Direct Investment inflow since liberalization Mauritius is quite predictably the top investing country for India during the period from August 1991 to March 2011, where investments touched US $.57,835 million taking up nearly 40% of total into India (Table 2). Foreign Direct Investments from Mauritius so far have always been the maximum on account of the Double Taxation Avoidance Agreement. In 1992, when FIIs were allowed into India, Mauritius passed the Offshore Business Activities Act, which allowed foreign companies to register in the island nation for investing abroad. The benefits for this were: Total exemption from capital-gains tax, quick incorporation (a company is formed in Mauritius within two weeks), total business secrecy and a completely convertible currency. For foreign investors willing to invest in India, it made sense to set up a subsidiary in Mauritius and route their investments through that country. By doing so, they would avoid paying capital-gains tax all together. India does not tax because the company is based in Mauritius and Mauritius had anyway exempted investors from capital-gains tax. In addition to this, Mauritius also has low rates of dividend and income taxes. Financial Year (April March) Amount % change over previous year Table 2 Country FDI August 91 Mar 11 (in US $ million.) % share of total 8. Germany 3,671 2.5 93
Singapore took over as the second largest investor with investments to the tune of US $12,239 million and a share of 8.4% of total investments (Last year, USA was in the second place). USA, UK and Netherlands were next to follow with investments amounting to US $11,899 million (8.1%), US $7,310 million (5.0%) and US $6,328 million (4.3%). These top five investing countries took up more than 65% of total investments into India post-liberalization, while the top ten accounted for 78.4% of total foreign investment into India during this period. Germany is the eighth largest investor for India with investments amounting nearly to US $3 671 million and a percentage share of over 2.5% of total investment into India since 1991. Next to follow in the 3 rd and 4 th place were Japan and Netherlands, whose investments - quite different from other countries - rose 32% and 35% respectively. The two countries invested US $1,562 million and US $1,213 million into India taking up 8.8% and 8.0% of total investments respectively. Investments from USA and Cyprus in position 5 and 6 - declined 40% and 44% respectively, while those from the UK increased nearly 15% last year. France, which ranked the eighth largest investor, up two notches over the previous year, invested US $431 million more (+142%) during the last fiscal, thereby registering the highest growth in investments last year. Investments from the country totaled US $734 million. UAE, in the 9 th position, invested 46% less in the last financial year over the previous year with investments amounting to US $341 million. Foreign Direct Investment during April 10-Mar 11 Mauritius was as usual on top of the investing countries chart with investments worth US $6,987 million, even though the volume of investments from the country declined substantially (-32.7%) during the fiscal April 10 to March 11 (Table 3). The country s share in the total investment into India too decreased from over 40% to 36% over the previous year. Singapore retained its position as the second largest investor into India though investments from the country was US $674 million less (-28.3%) last year over the previous year. Germany s ranking as far as investments during the last year go, was at no.10, one lower than in the previous year s ranking since investments from the country dropped substantially (-68%). The volume of investments during Apr 10 to Mar 11 was a mere US $200 million accounting for only 1% of total foreign investments into India last year. Top ten sectors attracting highest FDI equity The Services (financial & non-financial), Computer Software & Hardware and Telecommunications were the top three sectors that received maximum investment since April 2000, which take up 21%, 8% and 8% of the share of total respectively (Table 4). However, during the last financial year Table 3 w.r.t (Apr. 10-Mar 11) Country 2008-09 2009-10 2010-11 % change over 2009-10 % share of investments in 2010-11 10 Germany 629 626 200-68.1 1.0 95
Investments & Cooperation Table 4 Apr 00Mar 11 Sector Apr 08Mar 09 Apr 09Mar 10 Apr 10Mar 11 Apr 10Mar 11 % change over previous year Cumulative Apr. 00 to Apr 11 % of total Apr. 00 to Apr 11 (Apr 10-Mar 11), all three top sectors suffered setbacks in invest- Even though Computer software & hardware is the second most ments. The Services sector received investments to the tune of important category as far as overall investments go, last year US $3,403 million last year, however, they were 22.5% less than it fell to position eight while receiving investments worth only in the previous year. Computer software & hardware and Tel- US $784 million. Growth in investments in the Metallurgical ecommunications saw declines of 14.7% and 34.8% respectively. (+171.5%) and Oil & gas (111%) industries were particularly impressive during the last fiscal. In fact the only sectors that saw improved investments dur- Top ten regions attracting foreign investments ing the last fiscal were the Automobile, Metallurgical, Oil & gas and Chemical industries. The three sectors to receive maximum investments during the last financial year (Apr 10-Mar 11) were the Services sector, Telecommunications and the Automotive. The Mumbai/Maharashtra region (Table 5) continues to attract maximum foreign investments, which is 35% of total Table 5 Apr 00Mar 11 RBI s Regional Office State covered Apr 09Mar. 10 Apr 10- % change Mar. 11 over previous year Apr 10Mar. 11 Cumulative Apr. 00 to Apr 11 % of total Apr. 00 to Apr 11 *Others include Kochi, Bhubaneshwar, Bhopal, Kanpur, Guwahati, Patna and other regions not indicated 97
Investments & Cooperation Table 6 S.No Name of the Sector No. of approvals for all countries 98 Amount of FDI Approved in US $ million (all countries) No. of approvals for Germany Amount of FDI Approved in US $ million (Germany)
investments since April 2000. Delhi and its neighbouring area, which includes part of Uttar Pradesh like Noida and Haryana like Gurgaon, was the next most important region for foreign investments with a share of 19%. Bangalore and Ahmedabad followed in the 3 rd and 4 th place accounting for up to 6% of foreign investments since April 2000. In the last financial year (Apr. 10 to Mar 11), Maharashtra and Delhi though still occupying the first and second position respectively, saw decline in investments, particularly the Delhi area which saw a decline of over 72%. The third most important region for foreign investments during the last year was Chennai (US $1,352) followed closely by Bangalore (US $1,332) in the fourth place. The regions which saw increased investment during the last financial year were Tamil Nadu, Karnataka, Chandigarh, Goa and noticeably Madhya Pradesh/Chattisgarh. Foreign Direct Investments (FDI) and Foreign Technology Cases (FTC) approved post-liberalization FDI (Financial) approvals The top five industry sectors (see Table 6) that have maximum investment approvals (with financial participation) for all countries post-liberalization were Electrical Equipment (4,911), which includes Electrical Equipment, Computer Software, Electronics, Computer Hardware and others; Miscellaneous Mechanical Engineering industry(1,707); Services sector (1,614); Transportation industry (1,207), which includes the Automobile industry, and Air/Sea Transport, Passenger Cars, Auto Ancillaries & Parts as well as Trading (1,158). Since 1991, altogether 20,502 cases with financial participation have been approved by the Indian government. Germany has 1,614 financial approvals since August 1991, which is 7.9% of all such approvals. The top five sectors to have received financial approvals for Germany during the postliberalization period are Electrical Equipment (233); Industrial Machinery (157); Miscellaneous Mechanical & Engineering Industry (157); Transportation Industry (132) and Chemicalsother than fertilizers (131). About 4.7% of all the Electrical Equipment cases with financial participation were approved for Germany, followed by Industrial Machinery (22.4%); Miscellaneous Mechanical & Engineering Industry (23.4%); Transportation Industry (10.9%) and Chemical Industry (11.8%). FTC (Technical) approvals The top five industries that have maximum technology cases (see Table 6) approved by the government of India for all countries are Electrical Equipment (1,263), which includes Electrical Equipment, Computer Software, Electronics, Computer Hardware and others; Chemicals, other than Fertilizers (912), Industrial Machinery (875), Transportation industry (761), which includes the Automobile industry, and Air/Sea Transport, Passenger Cars, Auto Ancillaries & Parts and the Miscellaneous Mechanical Engineering industry (444). Altogether 8,140 technology cases were approved since August 1991. Germany accounted for nearly 13.7% of all Foreign Technology Cases (FTC) approved by the Indian government since liberalization in 1991. The top five sectors which received maximum technology approvals were Industrial Machinery (209), Electrical Equipment (168), Chemicals -other than fertilizers (127), Miscellaneous Mechanical & Engineering Industries (102) and Transportation Industry (94). Nearly 24% of all cases under Industrial Machinery were approved for Germany, followed by Electrical & Electronic Equipment (13.3%), Chemicals (13.9%), Miscellaneous Mechanical & Engineering Industries (23%) and Transportation Industry (12.4%). Business with India/Germany? Don t forget your pilot - IGCC! Website: www.indo-german.com/ http://indien.ahk.de 99