Capital Flow into India:

Analysis of Trends
Presented by
CA. Vaibhav N. Banjan
Membership No : 047584
MBF/Mumbai/ Batch 3
MBF Reg No : MBF12MU/010

Presentation Outline
Objective

of the Study
Sources of Foreign Capital
Importance of Foreign Capital
Trends in Foreign Capital
Analysis of Trends in Foreign Capital
Importance of FDI as source of Capital Inflow
Measures to Control Foreign Inflow
Suggestions to Improve Foreign Inflow

Objective of the Study

To

observe and analyze the trend and

composition of foreign Capital flows into India
in the last 5 years.
To analyze the policy initiatives and reasons
which contributed to change in Trends of
Foreign Capital flows.
To suggest measures to improve the
composition of capital flows into India.

Sources of Foreign Capital:

A) Debt
External Assistance
External Commercial Borrowings (ECB)
Banking Capital (including NRI Deposits)
Short Term Trade Credits
B) Equity
Foreign Direct Investment (FDI)
Foreign Portfolio Investment (FPI)

Importance of Foreign Capital

Increase

Accumulation & Rate of Investment

Create condition for Intensive Economic
Growth.
Contribute in Filling the Resource Gap.
Facilities
Attainment
of
Millennium
Development Goals.
Necessary for Micro Economic Stability
Capturing Benefits of Globalisation

Trends in Foreign Capital

Particulars

2007-08

2008-09

2009-10

2010-11

2011-12

(in Mn USD)
I) Foreign Direct
Investment
Inflows

34843

41873

37745

34847

46553

Outflows

18952

19530

19780

23542

24548

Net

15891

22343

17965

11305

22005

27271

-13855

32376

31471

17410

-163

177

-20

1179

239

27434

-14032

32396

30292

17171

II) Foreign Portfolio

Investment
Inflows
Outflows
Net

Trends in Foreign Capital

Particulars

2007-08

2008-09

2009-10

2010-11

2011-12

(in Mn USD)
External Assistance (Net)

2114

2439

2890

4941

2296

External Commercial
Borrowings (Net)

22609

7861

2000

12160

10344

Short Term Debt (Net)

15930

-1985

7558

12034

6668

Banking Capital (Net)

11759

-3245

2083

4962

16226

of which NRI Deposit

179

4289

2922

3239

11920

Other Flows (Net)

10847

-6016

-13259

-12484

-7008

Total Flow

106584

7365

51633

63210

67702

Trends in Sources of Foreign Capital

Trends in Sources of Foreign Capital

Analysis of the Trend in

Foreign Capital into India

High contribution of FDI in Foreign Flow

FDI Inflows has increased in the latest year.
FPI Flow initially improved in the year 2009-10 and
year 2010 -11 on account of favourable situation in
the basic economic variables.
FPI Flow then declined in the year 2011-2012 due to
risk aversion on account of global economic
uncertainty
Total of FDI & FPI (Equity) is similar in most of the
years

Analysis of the Trend in

Foreign Capital into India.2

Low Contribution of External Assistance

ECB Flow was highest in the first year
then declined considerably on account of outflow
in the next 2 years and then increased due to
liberalization in raising Debt capital
Short Term Debt has shown mixed trend
Banking Capital of which NRI Deposits has
contributed significantly in last year to Inflows
Net Foreign Capital has declined drastically

Major Inflow : FDI and its

Impact to India
Country's

trade balance
Increasing labour standards and skills
Transfer of new technology and innovative
ideas
Generation of employment opportunities
Improving infrastructure, skills and the
general business climate.

Initiatives
that
contributed
Improved Capital Inflows
Automatic

to

Route for FDI

Advance against Equity permitted
Portfolio Investment schemes liberalized
Liberalisation in issue of ADR/ GDR by Indian
Companies
FII/ NRI permitted to invest in Mutual Funds
and Government securities

Initiatives
that
contributed
to
Improved Capital Inflows
contd..
Foreign

Venture Capital Investment

ECB Limits liberalised for Many sectors
Buyers Credit and Supplier Credit liberalised
Bank allowed to borrow in International
Market
Interest Rate on NRI Deposit de-regulated

Impact of Foreign Capital Flow in

India
Improve

Foreign Exchange Reserve

Avoid

Balance of Payment Problem

Avoid

Depreciation of the Local currency

Improve

Investor Sentiments

Measures to Control Foreign Flow

Sterilized Intervention
Exchange rate Protectionism to be eliminated
Trade Liberalization
Check the Flow of FII funds as it may cause
equity bubbles
Incentives for Investment in Infrastructure and
Manufacturing
Cautious Capital Account Convertibility approach

Suggestions to Improve
Foreign Capital Flow
Removal of restriction on FDI in many sectors
and in particular in Insurance & Retail
Increase the Limit of FII in Equity of Companies
GAAR provisions could be in the way of grandfathering of existing models
Certainty in Taxation and avoid retrospective
amendments
Concessional of Withholding taxes for ECB
Borrowing of Infrastructure to be continued

Suggestions to Improve
Foreign Capital Flow
Fixed Income securities Market to be developed
Liberalisation in Venture Capital Financing
Improve Co-ordination between the Central and
State Government of FDI Investment
SEZ policies to be streamlined to encourage
Investment in SEZ
Land Acquisition for
Direct Investment to be
made easier
Maintain Stable Exchange Rate

THANK YOU