In India, Ides of March Yield Record FDI Inflows

Much brouhaha has ensued over the March FDI numbers. It’s come in at over $8 billion, compared to slightly over $1 billion during March 2011. This is supposed to be the highest FDI received in a single month and is a record of sorts. This data release — a news break from NDTV (read it here) — has also generated discussions, heated arguments and raised eyebrows.

The first reaction is one of  scepticism. Given the frequent revisions in government data (and the wide swings between the provisional and actual data releases), such cynicism is to be expected. However, it must be said that there is very little room for FDI data to gyrate wildly since the ticket size of each transation tends to be larger and the numbers are captured through a central tracking authority.

The second reaction is: if the inflows truly were over $8billion, then have we all been over-reacting over the past few months? Was the commentariat hasty in criticising this government’s so-called “policy paralysis”?Did the FIIs and the global fund managers retreat too soon?

Well, the truth will out once the official numbers are released. But, in the meantime, it seems that there could be two reasons for this sudden bulge in the numbers this year.

One, it seems BP’s investment of $7.2 billion in Reliance Industries was staggered over the course of 2011-12 and the final instalment of the investment could well have trickled in during March 2012.

Two, many FDI commitments, especially those related to long-gestation infrastructure projects, are staggered over the duration of the projects. Inflows, linked to project milestones, are therefore spread over many years. It could well be — and this is just a speculation — that some of FDI committed for infrastructure projects in earlier years and now flowing into the country this year.

There is another, rather unkind view of this favourable data leak, especially when Parliament is in session and the Government is on the back-foot over GAAR.

Whatever it is, an explanation will certainly be welcome.


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