The Hindu Business Line : Trends in foreign capital inflows

Total foreign investments into India in 2007-08 stood at US $ 59288 million (about Rs 2.5 lakh crore), up by a whopping 162 per cent over the previous year. October 2007 witnessed the highest inflow - US $ 11591 million (Rs 48682 crore), CMIE data shows. July, September, December and January too witnessed heavy investments and these months brought in about 50 percent of the total inflows for 2007-08.

FDI REPLACES FII

Predictably, a major contributor to this whopping 162 per cent rise has been foreign portfolio investments (FII investments). A booming stock market for much of 2007 resulted in net FII investments surging to US $ 20328 million (Rs 85400 crore) in 2007-08.

But FII trends reversed in 2008 in the months of February and March, with adverse global cues, rising inflation and falling industrial production, cutting the growth story short. In these two months, FIIs were net sellers to the tune of US $ 10634 million (Rs 44660 crore).

Ironically, it was during these two months that FDI investments peaked. CMIE data shows that one third of the total FDI inflow happened towards the close of the year with February and March attracting about Rs 36000 crore.

Six of the preceding months also showed an inflow of over US $ 1000 million (Rs 4200 crore approx) leading to an overall rise in foreign direct investment by 165 per cent for 2007-08, to US $ 24745 million (Rs 1.04 lakh crore approx).

IMPACT ON THE RUPEE

Largely due to the bourgeoning foreign capital inflows, the rupee, during April 07 - January 08, appreciated against the dollar by anywhere between 11-15 per cent in comparison with the same period last year. The reduction in inflows in the last two months arrested the double-digit appreciation witnessed until then.

Slower capital inflows, dollar buying by the central bank, negative market sentiments and concerns about the economy seem to exert downward pressure on the rupee taking it back to Rs 42 a dollar level so far in 08-09.

PARVATHA VARDHINI C

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