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Why Are Only Five States Getting 70% Of Foreign Direct Investment Inflows?

Raman Swamy

Is it true that 70 per cent of total Foreign Direct Investment inflows into India are going to just five States -  Gujarat, Maharashtra, Haryana, Delhi-NCR and Andhra Pradesh?  

If so, why is it so?  Will it not worsen the problem of regional disparity?  Will it not lead to lop-sided development within the country? 

Is it true that foreign investors are mainly showing interest in only a handful of select sectors of the economy – like IT, Retail and Defence?  Then, what happens to other sectors which are desperately in need of investments? 

What about the infrastructure sector?  During the early years of the UPA regime, the then Prime Minister had famously told American investors that the requirement for infrastructure is 150 billion dollars.  Ten years later, the present Prime Minister said during his first Washington visit that the revised estimate is cloer to one trillion dollars. 

So, how much of FDI currently flowing in is going towards roads and highways; airports and aviation; railways; ports and shipping; urban infrastructure and housing and to core sectors like power, steel, cement, coal and fertilizers?    

These are all literally billion-dollar questions.   For some inexplicable reason the government does not seem to be fully forthcoming with the answers.  Industry players and economists alike are finding it hard to decode the precise parameters of the government’s foreign investment policy. 

On the surface there is a great deal of apparent transparency.   Frequent updates are being provided about the quantum of inflows.  Announcements are being made regarding relaxation of FDI norms from time to time.   There is a great deal of optimism being expressed by various economic ministers about the trends and prospects of faster FDI inflows.  

Yet, there seems to be somewhat of a reluctance to openly reveal and publically discuss the emphasis and priorities of the FDI policy.   In mid-July, a high-level meeting was scheduled to have been held to review FDI policy.   News agency reports even flashed the news that the Prime Minister had chaired such a closed-door meeting on July 14.  

However, the next day, financial newspapers reported that in fact the review had been postponed.  The reason cited was the Finance Minister was unable to attend due to some other pressing preoccupation.  It is not known whether in the fortnight since then any review meeting has taken place, and if so what was the outcome and what decisions were taken.   

There is clearly a need to closely monitor the pace, progress and direction of FDI.  There is equally a need to be transparent about the trends and course corrections. 

Otherwise, guessing games tend to begin.  For instance, there is talk in industry circles that fresh new investments have lately come from China.  This would have security ramifications, which is probably why the government is reticent about revealing details immediately.   

That apart, the apparent tendency towards four or five States benefitting the most arouses political doubts and misgivings.  Other States and regions such as eastern and north-eastern India as well as small and large States in the north and north-west would be left wondering where they stand in the FDI boom era.

FDI growth overall has actually been on the upswing.   This is essential because for India to achieve robust countrywide economic growth, substantial amounts of Foreign Direct Investment are needed.  The present and past government have made strenuous efforts to attract investment from different countries.

During UPA-I there was a tremendous growth of 625 per cent in FDI, as it rose from $6 billion in 2004-05 to $41.8 billion in 2008-09.  But then came the global financial meltdown and there was a sharp dip in FDI inflow.

Under the NDA, a remarkable revival has been registered.  In the last three years the rise has not only been consistent but also substantial.  According to Commerce Ministry data, FDI inflow in 2014-15 was 45.15 billion dollar, about 9 billion dollars more than the 36.05 billion dollars in 2013-14.  In 2015-16, FDI rose to 55 billion dollars.  Since then it has increased even higher -- between April 2016 and March 2017 it crossed 60.08 billion dollars, thereby touching a record high.

But the break-up is not uniformly heartening -- April 2016 to March 2017, FDI equity inflows came from Mauritius ($15.73 billion), followed by Singapore ($8.71 billion), Japan ($4.71 billion), Netherlands ($3.37 billion) and the US ($2.38 billion).

On its part, the NDA government has been easing FDI norms on an incremental basis -- sectors such as defence, civil aviation and pharmaceuticals saw radical liberalization last year.  Other sectors such as retail and construction are likely the next beneficiaries. 

But the disquieting aspect is that the bulk of the increased FDI flowing in is concentrated only in a few States --  Gujarat, Maharashtra, Haryana, Delhi-NCR, Andhra Pradesh and Karnataka.

In contrast, eight eastern states - Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, Uttarakhand, Uttar Pradesh and West Bengal - received only 0.5 per cent of the total FDI in the same period.

For the overall development of India, it is necessary that all parts of India receive equal investment and attention.  As the Prime Minister himself once said:  “The chariot of development needs to run on two wheels - Eastern and Western India”.   This is not the case at the moment.  There is no answer to the question: why?  There is also not enough information about what is being done to correct the anomaly.

Aug 17, 2017


Raman Swamy [email protected]

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