The Hindu : Revised norms show higher FDI inflow

Online edition of India's National Newspaper
Tuesday, Jul 01, 2003

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Business

Revised norms show higher FDI inflow

By Our Special Correspondent

NEW DELHI JUNE 30. With the Government deciding to change the composition of what constituted `foreign direct investment' (FDI) into India, there has been an increase of $2.08 billion inflow into the country on account of FDI during 2002-03. Similarly, foreign direct investment abroad made by Indians has also grown by $590 million.

Though the revised definition of FDI would not alter the accretion to the foreign exchange reserves of the country, there have been some changes in terms of balance of payments (BOP) data. Accordingly, changes in the current and capital account transactions of BOP show that the current account surplus of $1.4 billion reported in 2001-02 now stands revised to $0.8 billion while the current account deficit during 2000-01 increased from $2.6 billion to $3.6 billion.

The changes in what constitutes FDI have been made on the basis of recommendations of an expert committees which felt that inclusion of 14 items in the Indian FDI data under three major heads would make the Indian data reporting system in line with best international practices.

As per the recommendations, under equity capital, the new additions were to be equity capital of unincorporated entities, non-cash acquisition against technology transfer, plant and machinery, goodwill, business development and similar considerations. Also, control premium and non-competition fees were recommended for inclusion.

Under the head of revised earnings, reinvested earnings of incorporated and unincorporated entities and reinvested earnings of indirectly held direct investment enterprises were recommended for inclusion. Under the head of `other capital,' the inclusions recommended were of short-term and long-term inter-corporate borrowings, trade credit, suppliers credit, financial leasing, financial derivatives, debt securities and land and buildings.

The Government, however, decided that the revised data on FDI should include all items under equity capital except non-cash acquisitions. It was also explained that equity capital of unincorporated entities includes the equity capital of foreign banks' branches in India. The Government also decided that under reinvested earnings, all items were to be included except reinvested earnings of indirectly held direct investment enterprises. The Government also decided that short-term trade credit, financial derivatives, debt securities and land and buildings would not be included.

The revised data for FDI for 2001-02, therefore, stands at $6.13 billion, an increase of $2.22 billion over the earlier reported figure of $3.90 billion. For 2000-01, the revised data now stand at $4.02 billion, an increase of $1.68 billion over the earlier figure of $2.34 billion.

The data on foreign direct investment abroad by Indians also stand revised. Accordingly, it was placed at $1.39 billion in 2001-02 against the earlier figure of $639 million while for 2002-03, it was $1.04 billion against the earlier reported figure of $459 million.

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