The Hindu Business Line : `FDI projected to exceed portfolio investments'

The Economic Advisory Council to Prime Minister in its presentation on balance of payment (BoP) for the current year said that for the first time in several years the net foreign direct investment (FDI) is projected to be larger than portfolio capital flow.

It is found to be encouraging as FDI creates assets and jobs and raises the overall productivity while the impact of portfolio investments are restricted to the stock markets and money markets.

Net FDI this year has been estimated to be around $9 billion, up from $4.7 billion last year. The net figure results from in-bound FDI of around $12 billion and out-bound FDI of $3 billion, according to an official release.

The BoP data indicates a current account deficit (CAD) for the first half-year at $11.7 billion. A mechanical extrapolation of this, after adjusting for seasonal variation, results in a full year CAD of around $20 billion or 2.5 per cent of the expected GDP of $900 billion. However, historical experience with data shows that such mechanical extrapolations would be off-target as the provisional figures are substantially adjusted downwards in later revisions, the release added.

Applying the correction accordingly, the EAC estimates the CAD for the first half year at $6.5 billion, and for the full year at $13.4 billion, which translates to 1.5 per cent of the projected GDP.

The EAC's previous notes on BoP had drawn attention to the divergence in the trade data of DGCI&S and RBI, which was giving confusing signals to economic agents. There has been a significant improvement in this regard. As a result of subsequent revisions, the disparity in the two data series has narrowed by nearly 50 per cent.

The EAC in its presentation, to Dr Manmohan Singh, has projected a net accretion to reserves by the end of this fiscal of $22.6 billion, up from $15.1 billion last year. Of this, $8.6 billion has already been absorbed in the first half year, it said. It is estimated that another $6 billiion-7 billion would have come in the third quarter (October- December 2006), leaving a like amount to be absorbed in this last quarter. The stance of monetary policy has to take this into account.

With the increase in exports and imports, the ratio of total trade to GDP, signifying the extent of global integration of our economy, will be 35.9 per cent this year, up from 32.8 per cent last year. If software exports is taken into consideration the ratio this year will go up to 39 per cent, the EAC said.

More Stories on : Foreign Direct Investment

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page