India is, for the first time, expected to attract $5 billion foreign direct investment through the equity component alone during 2005-06. This implies that overall FDI inflows may easily cross the estimated $7 billion during the fiscal.
According to the preliminary estimates for 2004-05, total FDI inflows were pegged at $3.75 billion. FDI inflows include equity investments and reinvested earnings.
The equity component of FDI inflows for 2004-05 has not yet been compiled, since the final FDI data including details of the reinvested earnings are still being compiled by the Reserve Bank of India.
Traditionally, the equity component of FDI inflows in India has been around 50-55 per cent of the total inflows. In 2002-03, of the FDI inflows of $5.03 billion, the equity component was around 55 per cent at $2.76 billion. In 2003-04, of the FDI inflows of $4.67 billion, the equity component was $2.38 billion or 50 per cent.
The World Investment Report 2005 has pointed out that India and China were the two most attractive investment destination among transnational corporations.
The Foreign Investment Promotion Board recently approved the investment proposal of Oracle for shares acquisition by an open offer in i-flex, which alone translates into an equity infusion of Rs 4,000 crore or $900 million.
This is in addition to the preliminary data available with the FIPB on the basis of reports filed by companies, which show that the top 25 inflow cases received during April-July 2005 has already touched $1 billion.
Several other big ticket investments are in the pipeline. Taiwan's Hon Hai Precision Industry Ltd is considering an investment of over $100 million for setting up a manufacturing facility near Chennai.
CEOs of some of the leading companies are in the capital this week scounting for business opportunities. These include Michael Pram Rasmussen, chairman of the board of directors of the AP Moller Maersk Group, and Anders Dahlvig, CEO of IKEA Worldwide.
Since most of the sectors are now on the automatic route (not requiring FIPB clearance), officials pointed out that the inflows could be higher once the FIPB data is collated along with the data compiled with the RBI. Most approvals coming to FIPB pertain to permission to set up a subsidiary for undertaking wholesale cash or carry operations.
Equity investments are routed through the RBI or FIPB, but companies are also required to submit details of fresh equity infusion to the RBI within 30 days. Details on reinvested earnings are collected by the RBI annually through its foreign assets and liabilities survey. However, the response of the companies to the survey is poor at around 25 per cent.
Attempts are now being made to improve data collection on 'other capital', which includes intra-company loans, long-term borrowings or capital infusion by a parent company for a subsidiary incurring losses.
Officials said the government is considering an amendment in the Foreign Exchange Management Act to make it mandatory for the companies to file details of their 'other capital' once a year.
Money Matters