Significant moderation in FDI flow raises RBI eyebrows

MUMBAI: The noteworthy moderation in the flow of foreign direct investment (FDI) into the country during 2010-11, has raised the concerns of the Reserve Bank of India (RBI).

The moderation in FDI flow is in line with other emerging market economies in Asia and Latin America receiving large FDI inflows.

As per the study by the apex bank, the moderation in investment flows in India appears somewhat inexplicable, despite a faster recovery from the crisis period. It also noted that the situation is due to certain institutional factors that suppressed the investors' sentiments despite continued strength of economic fundamentals.

Over the last seven years, the FDI trends in 10 select emerging market economies indicate that institutional factors such as time taken to meet various procedural needs indeed make a significant impact on FDI flows.

FDI flow into India increased from $6 billion in 2001-02 to $38 billion in 2008-09.

“When there was a significant deceleration in global FDI flows during 2009-10 in the wake of global crisis, the decline in FDI flows into India was relatively moderate, reflecting robust equity flows on the back of a strong rebound in the domestic growth ahead of global recovery and steady reinvested earnings,” as mentioned in the RBI study.