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CAPITAL INFLOW IN INDIA - September 3rd, 2010


In 1980s net capital inflows to India were almost negligible and became a quantity to be reckoned with only 1993-94 onwards.

From a low of Rs. 1699 crores in 1992-93, net capital inflows jumped to Rs. 13282 crores in 1993-94.

From then on, except for a few aberrations (during 1998-99 net capital inflows fell to Rs. 10169 crores due to the East Asian crisis and in 2002-03, they again dipped to Rs. 27254 crores which can be attributed to the global economic slowdown), capital inflows have been mushrooming.

The net capital inflows increased from an average of about Rs. 200 crores during the 1980s to an average of over Rs. 12,000 crores during the 1990s.

While in1993-94, net capital inflows amounted to Rs. 13282 crores, the figure increased over twenty two times to reach Rs. 3,01,668 crores in 2007-08.

The composition of capital inflows also changed markedly. Inflows in the form of foreign direct investment (FDI), portfolio investment, external commercial borrowings, non-resident deposits and social deposit schemes dominated the capital account and the dependence on aid was nearly eliminated.

This is again a reflection of the growing confidence among international investors in India as it increasingly liberalized its policies.

FDI to India which stood at a low level of Rs. 1837 crores during 1993-94, picked up significantly thereafter and during 2007-08, it stood at Rs. 31,568 crores; an average annual increase of over 100%.

FII inflows to India started only in 1993-94 (Rs. 11,445 crores) and since then have been on the rise. They totaled Rs. 3,01,668 crores during 2007-08.

Thus, over a span of Fifteen years, FII inflows increased by over Twenty six times.

As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI).

India's recently liberalised FDI policy permits up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI.

The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime (subject to FEMA regulations).

During past few years number of changes was approved on the FDI policy to remove the cap in most of the sectors.

Restrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, commodity exchanges, petroleum and natural gas, credit-information services, Mining etc.

The future of Indian economy is brighter because of its huge human resources, rapidly upcoming service sector, availability of large number of competent professionals, vast market for every product, increasing impact of consumerism, absence of controls and licenses, interest of foreign entrepreneurs in India and existence of four hundred million middle class people.

Today, India provides highest returns on FDI than any other country in the world.

Overall we can say that FEMA had a great influence on Economic growth of the country & it will remain for the coming years as well.

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