What BJP leaders won’t tell you about foreign direct investment in India

The central government, Bharatiya Janata party leaders and several Union ministers including Prime Minister Narendra Modi claimed over the past week that India had received the largest influx of foreign direct investment in 83 $.57 billion in fiscal year 2021-22. While this is not wrong, the full picture of foreign investment in India is much bigger than that.

The Ministry of Trade and Industry, in a press release dated May 20, said India was rapidly emerging as a “preferred investment destination”.

A few days later, Prime Minister Modi, at the convocation ceremony of the Indian School of Business in Hyderabad, said, “India is emerging as a major growth center today. Last year, the highest ever recorded FDI entered India. Today, the world realizes that India is synonymous with business. Our young people have proven that they can become world leaders.

Several Union ministers and BJP leaders followed in unison. While BJP National Chairman JP Nadda attributed the record influx of FDI to “Modi’s diplomatic efforts on the international stage”, the party’s National Vice Chairman DK Aruna said it was the result of “minimum government, maximum governance”.

The Reserve Bank of India defines FDI as “investment through equity instruments by a person residing outside India (a) in an unlisted Indian company or (b) in 10% or more of the paid-up share capital after issuance on a fully diluted basis”. basis of a listed Indian company”.

The growth of FDI inflows slowed in 2021-22, as it increased by $1.6 billion compared to a rise of $7.58 billion in 2020-21. This means that growth fell to 1.95% in 2021-’22, from 10.19% in 2020-’21 and 19.98% in 2019-’20.

Instead, the ministry, in the May 20 press release, pointed out that “FDI inflows into India have increased 20 times since 2003-2004, when inflows were only 4.3 billion of dollars”.

“Implicit in this rhetoric, which exaggerates the importance of selectively chosen numbers, without placing them in context, is the belief that propaganda can trump a reality that is easily obscured,” wrote Jayati Ghosh, professor in economics at the University of Massachusetts Amherst, and CP Chandrasekhar, a research fellow at the Political Economy Research Institute and former professor of economics at Jawaharlal Nehru University, in an article published in The Hindu industry.

Outputs also increased

The amount of foreign direct investment inflow of $83.57 billion that the ministry is focusing on is the “gross” FDI inflow. This means that from these inflow figures, any outflow due to repatriation or divestment of past inflows by foreign investors or investments abroad by resident entities has not been deducted.

“The net number takes into account two other things: the foreign money that had entered India earlier in the form of FDI and is leaving [repatriation/ disinvestment] and Indian money going abroad in the form of FDI,” said Vivek Kaul, author and economics commentator. fact checker.

Once these two elements are deducted from the gross foreign direct investment, the calculated net FDI shows a decrease of 10.61% compared to the previous year – 39.29 billion dollars in 2021-’22 against 43.95 billion in 2020-’21.


“I think we should look at net inflows because these flows are important to support a balance of payments,” said Alok Sheel, RBI Professor of Macroeconomics at the Indian Council for Research in International Economic Relations. “We have a huge merchandise trade deficit, made up of two components: service exports and foreign investment. This is how you accumulate foreign exchange reserves. But we have to look at how much it actually fits.

There has been a significant increase in the volume of repatriated or disinvested foreign capital over the years, indicating a trend that foreign direct investors who had a lasting interest in India have withdrawn from their investments and exited.

“Between 2019-’20 and 2021-’22, gross FDI inflows increased despite the effect of the pandemic, net inflows fell mainly due to repatriation or divestment by existing direct investors,” Ghosh wrote. and Chandrasekhar.


This divestment increased to $28.6 billion in 2021-22, from $27.04 billion in 2020-21 and $18.38 in 2019-20. Similarly, FDI from India also recorded an increase of 42.9% from $10.97 billion in 2020-21 to $15.68 billion in 2021-22.

According to Sheel, even reinvested earnings should be deducted. “If you look at the foreign currencies coming in, the reinvestment should not be counted because it is money earned in India and reinvested here,” said the professor from the Indian Council for Research in International Economic Relations. fact checker.

“This is an accounting adjustment and does not involve any foreign currency inflows,” Sheel said. “Similarly, the reinvested earnings of Indian investors abroad also do not involve the outflow of foreign currency.”

According to his calculation, if these reinvestments are excluded, net FDI inflows in foreign currencies amount to $30.03 billion in 2020-21 and $23.38 billion in 2021-22, representing a an even more marked drop (22.14%) than the 10.61 calculated previously. %.

Volatile portfolio investments

There are two types of foreign investment. One is direct investment and the other is portfolio flows, in which foreign investors buy stocks and shares in futures contracts of companies. Portfolio investment is the money that foreign institutional investors bring to India to invest primarily in stocks.

Net portfolio flows have been volatile in recent years. In 2020-21, India recorded a net inflow of portfolio investment of $36.1 billion and a net outflow of $17.3 billion in 2021-22. This means that, combined with net FDI inflows, the overall net flow of foreign investment amounted to $22.06 billion in 2021-2022, compared to $80.09 billion in 2020-21.


Sheel explained that this is not good for India’s reserves. “India runs a current account deficit because the merchandise trade deficit is larger than the invisible trade surplus,” Sheel concluded. “Despite this deficit, India was adding reserves through foreign investment inflows, both in the form of FDI and portfolio. If these inflows turn negative, India will bleed its reserves. there are not enough foreign inflows to finance the current account deficit.

When fact checker contacted the Department of Trade and Industry, Anant Swarup, joint secretary of the Department of Commerce, said “the relevant officials” were in the Department of Promotion of Industry and Internal Trade. We then emailed and called several officials from the Department of Industry Promotion and Internal Trade, but had not received a response as of this writing. If and when we do, it will be updated here.

This article first appeared on FactChecker.in, a publication of the data-driven, public interest journalism nonprofit IndiaSpend.