An Inclusive Study Of Foreign Investment In The Indian Economy

Foreign institutional investors have gained a significant role in Indian capital markets. Availability offoreign capital funds depends on many specific factors other than economic development of the country. During the last two years, the Indian economy has been buffeted by three major challenges originating in its external sector. First a surge in capital inflows which reached a crescendo in the last quarter of 2007–08, second, an inflationary explosion in global commodity prices, which began even before the first challenge had ebbed, that hit us with great force in the middle of2008. There was barely any time to deal with this problem before the third challenge, the global financial meltdown and collapse of international trade, hit the world with severity.

Despite the global slowdown, the Indian economy is estimated to have grown at close to 6.7per cent in 2008–09. The Confederation of Indian Industry (CII) pegs the GDP growth at 6.1 per cent in 2009–10. This scenario factors in sectoral growth rates of 2.8–3 per cent, 5–5.5 per cent and 7.5–8 per cent, respectively, for agriculture, industry and services. A number of leading indicators, such as increase in hiring, freight movement at major ports and encouraging data from a number of key manufacturing segments, such as steel and cement, indicate that the downturn has bottomed out and highlight the Indian economy's resilience. Recent indicators from leading indices, such as Nomura's Composite Leading Index (CLI), UBS’ Lead Economic Indicator (LEI) and ABN Amro’ Purchasing Managers’ Index (PMI), too bear out this optimism in the Indian economy.

Meanwhile, foreign institutional investors (FIIs) turned net buyers in the Indian market in 2009. Direct investment inflows also remain strong, prompting official expectations that foreign direct investment (FDI) inflows in 2009 would better the realized inflows of US$ 33 billion in 2008 and touch US$ 40 billion. According to the Asian Development Bank's (ADB) ‘Asia Capital Markets Monitor’ report, the Indian equity market has emerged as the third biggest after China and Hong Kong in the emerging Asian region, with a market capitalization of nearly US$ 600 billion.