Fact Check: How true are Nirmala Sitharaman’s claims about FDI flows?
Sai Krishna Muthyanolla
February 15, 2020
The finance minister during the course of the budget speech for 2020-21 made claims about the FDI inflows during 2014-19 and compared that with the previous 5-year term. How true are these claims?
UnionFinance Minister, Nirmala Seetharaman presented the Union Budget on 01 February2020, and as part of her speech enlisted several achievements and policies ofthe government.
Factlyhas earlier done a
deep dive of few
of these claims made in the speech. In this story we look at claimsmade about FDI flows.
The
increase in FDI
Claim:  India’s foreign direct investment (FDI) increased to the level of US$ 284 billion during 2014- 19 from US$ 190 billion that came in during the years 2009-14.
Fact : The absolute numbers quoted by FM are TRUE. However they do not provide the holistic picture as the rate of growth of FDI inflows has come down. Further, Net FDI has also reduced due to increase in Investments leaving the country.
In her speech, the Finance Minister stated that FDI into India during the five-year period of 2014-19 was US$ 284 billion. Prior to that, India received US$ 190 billion during the five-year period 2009-14. The five-year period of 2014-19 is the first term of the Modi led BJP government.
TheReserve Bank of India’s (RBI) yearly report ‘Handbook
of Statistics on Indian Economy’, providesthe details of FDI every year.  As perthe data in this report, approximately US $ 284 billion was the FDI into India duringthe five- year period 2014-19.There has been a yearly increase in the FDI inflow for every fiscal year duringthis period. The biggest increase during the period, was in 2015-16 when FDIinflows increased by nearly 10 billion dollars. The yearly increase has beenlower in subsequent years.
What
about 2009-14?
Thetotal FDI inflows during the five-year period of 2009-14, the UPA’s 2 term, was US $ 190 billion which matches with the number quoted by the Financeminister in the budget speech.
Duringthese five years, 2011-12 stands out in terms of FDI inflows with US $ 46.55billion, an increase of over US $ 10 billion compared to the previous year.However, there was a sharp decline of over US $ 12 billion in the followingyear 2012-13 with a slight increase in the next year.
Thetotal FDI inflows i.e. receipts into India has grown from US $ 190 billionduring UPA’s second term (2009-14) to US $ 284 billion during the currentgovernment’s first term i.e. an increase by 49 %.  So, this statement is true to the extent ofthese numbers.
Has the FDI growth rate increased?
However,what one also needs to look at is the rate of growth and if the 49% growthachieved during the Modi government’s first term is substantially higher thanthe rate of growth achieved by previous governments.
DuringUPA’s 1 term i.e. from 2004-09, the total FDI inflows into India wereapproximately US $ 114 billion. This means that there was an increase in FDIinflows by 67% during UPA- II when the inflows were US$ 190 billion between2009-14.
Duringthe period 2004-2009, there has be an exponential increase in the FDI inflowsin the year 2006-07. During this year,  FDIworth US $22.8 billion flowed into India compared to the two years before that whereit was only around US $ 6 billion and US $ 9 billion respectively. Theexponential increase continued in the final two years of UPA-I’s tenure.
Duringthe period 1999-2004, where NDA government was at the Centre under theleadership of Vajpayee, the FDI inflows were around US $ 31.6 billion, of whichUS $ 12 billion were during the first year i.e. 1999-2000, with the FDI inflowstapering off during the reminder of the tenure. When compared to this period,the FDI inflows during UPA–I (2004-09) increased by 262%.
Eventhough in terms of absolute numbers, FDI inflows for the period 2014-19 ishigher than that of the earlier five-year period of 2009-14, the rate of growthof FDI inflows is less than the two earlier terms.
Whilethis is the case in terms of FDI growth, it also has to be noted that amount ofFDI inflows also depend largely on the FDI
policy and opening up of more sectors.
Net
FDI indicates a negative trend
TheFDI inflows are only one side of the overall FDI picture. FDI inflows are theFDI that are made in India by foreign investors. Apart from this, there is alsoscope for investments leaving the country i.e. FDI Outflow. Apart from thisthere is also Disinvestment/repatriation of the funds that were invested earlierin India. Hence, the Net FDI provides a more holistic picture of the state ofFDI than just the FDI inflow numbers.
In
the recent years, the net FDI has shown a negative growth especially withan increase in the FDI outflows as well as disinvestment/repatriation amount.
FDIOutflows during the period of 2009-14 was US $ 59 billion, while the outflowsduring the period 2014-19 is lesser i.e. US $ 41.25 billion. However, it needsto be noted that a major part of the FDI outflows during 2009-14 were duringthe first two years. On the other hand, FDI outflows have being increasing yearon year during the period 2014-19. In 2014-15, FDI outflows were US $ 4 billionand increased incrementally every year to reach US $ 13 billion in 2018-19. Reasonsfor FDI outflows could be varied like better investment opportunities in othercountries.
Meanwhile,the amount being disinvested/repatriated has more than doubled during thefive-year period 2014-19. During 2009-14, The total amount that left India dueto disinvestment/repatriation was around US $ 38 billion, which increased to US$ 79 billion for the period 2014-19. Apart from a slight dip in 2018-19, therehas been a consistent incremental increase over the five years in the case ofdisinvestment/repatriation.
Thisincrease in FDI Outflows and Disinvestment/repatriation has affected the netFDI as seen in the chart below.
Hence,even though the higher FDI inflow as quoted by the finance minister for thefive-year period 2014-19 is true, the rate of growth is lower when compared tothe earlier period. Furthermore, when the whole FDI scenario including outflowsand disinvestment is taken into context, the FDI situation does not indicate apositive increasing trend.