FDI for Make-in-India yet to come

Mumbai: Despite the hype over Make-in-India, the foreign direct investment that is coming in is going into consumer technology and the auto sector rather than into creating manufacturing hubs that make products in the country and export them where India has had a leadership role since 2013. “Clearly, in our view, such flows cannot be considered aligned to the spirit of the “Make in India” campaign,” said Dhananjay Sinha, head, research, Emkay Global Financial Services Ltd.

Elaborating further, he said, “rather than encouraging manufacturing, e-tailing investments in turn, have fuelled imports of consumer electronics.” Fifty per cent of the private equity/venture capital funds in 2014 went into companies like Flipkart, Snapdeal and funds of Kotak, Shriram Capital, Sutherland Global Services etc.

Interestingly even the commerce ministry figures indicate that in 2014-15 investments by FIIs rose 717 per cent to $40.92 billion. This therefore has gone into equity and not the Make in India programme.

Mr Sinha further points out that net of repatriation /disinvestments, gross FDI into India increased only 15 per cent. “Available information for India shows that gross FDI flows, after deducting repatriation/disinvestment, at $20.4 billion, grew by a modest 15.6 per cent year on year in the first half of 2015.

Significantly, repatriation/disinvestment for India in H1 2015 shot up by 79 per cent to $56billion, compared to $31 billion in H1 2014,” he said in his India strategy report.

Sector wise incremental flows of net FDI reflect bottoming out around end of 2013, with growth of 14.8 per cent (CAGR) contributed by computer software and hardware (27.3 per cent of total), telecommunications (22 per cent), automobile (29.3 per cent) and trading (62.1 er cent).

Notably, 13 sectors which contributed 73 per cent in cumulative flows since 2000, have incrementally contributed lower at 68 per cent during 2013-2015. The reduction in share was mainly from stressed sectors like metallurgy and real estate, and chemicals while share of services (primarily financial and banking services) has also declined sharply with a lower 7.6 per cent growth per annum. “The profile of recent FDI flows, in our view, is indicative of investments done to tap the domestic household consumption rather than catalyse exports,” he said.