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Maximum FDI in services sector: Study

Posted on Feb 06, 03:42PM | IBNS

New Delhi, Feb 6 : About one-fourth of India's total Foreign Direct Investment (FDI) is accounted for by the reinvestment of earnings by the overseas investors reflecting their long term commitment towards their Indian operations, an ASSOCHAM study has shown. An analysis of the official data for the last five years from the fiscal 2008-09 till 2012-13 (April-Nov for FY 13) shows that of the total FDI of USD 186 billion, the reinvested earnings aggregated USD 45 billion.

"The trendline has been more or less the same for the last 10 years, which shows that the foreign investors who have set up their operations or have acquired businesses in India are ploughing back good enough," said ASSOCHAM President Rajkumar N Dhoot.

In fact, the financial year 2010-11 was the best in terms of reinvestment of earnings by foreign investors. Of the USD 34.8 billion total FDI inflows, the reinvestment of the earnings accounted for a huge 34 per cent .

But this was the worst period in the five years between 2008-09 and 2012-13 for pure equity inflows in the total FDI. Of USD 34.8 billion, the equity was about 21.3 billion USD.

A sectoral analysis throws the services sector attracting the maximum of the FDI inflows accounting for about one-fifth of the total foreign investment.

"This is not surprising, given the fact the services account for over 55 per cent of the Indian economy," the ASSOCHAM study noted.

Construction development, including building of infrastructure, housing and township accounted for about 12 per cent of the total overseas inflows, followed by telecommunication and computer software and hardware, said Dhoot.

"Somehow, we need to sell the infrastructure story to the international investors. We must try to attract the maximum FDI into the construction and infrastructure as our country suffers a big bottleneck on this count. Building of physical infrastructure would also lead a multiplier impact," said Dhoot.

This is even more relevant at this point of time when India's industrial sector , particularly manufacturing is not doing well.

Exports too are down into the negative territory. Boost to investment into the construction sector, particularly infrastructure would be a catalyst for the overall GDP expansion, ASSOCHAM said.

The fiscal year 2006-07 was indeed a turning point for FDI. In this year, the total FDI crossed the double digit figure and the equity components alone showed an increase of about 300 per cent.

The trendline has been more or less stable in the last six - seven years, the study noted. It also found that the mergers and acquisitions, including the big-tickets ones also contributed to increase in the FDI into the country.