The net foreign direct investment (FDI) inflow in India is expected to improve sharply to $19.5 billion during FY 12 as compared to $7.1 billion in FY 11 on account of robust and sustainable economy, the Centre for Monitoring Indian Economy (CMIE) said in its monthly review.
As per the review, FDI inflows during the first two months of FY 12 were much higher at $7.4 billion compared to $3.6 billion during the corresponding period of FY 11.
Since higher FDI inflows are more than made up for the lower foreign institutional investor (FII) inflows, total foreign investments during April-May 2011 were much higher at $9.7 billion compared to $7.8 billion during April-May 2010.
"We maintain that FDI inflows into India will continue to be robust as the Indian economy will continue to remain amongst the fastest growing economies of the world. We also expect FII inflows into the Indian equity markets to continue in the coming months for the same reasons," CMIE said.
The economic growth in India is also sustainable and driven by the domestic demand. The high inflation and supply shortages driving it is an indication of a strong underlying private consumption demand in the country. Overseas investors are likely to be keen on capitalising on it, it said.
The monsoon is likely to play an important role in the Indian economy. The monsoon and the sowing in the current year are going well and this fortifies the economic growth story of the current year, the review said.
CMIE observed that as far as the interest rates in the international markets remain low, the liquidity remains "very healthy" and is likely to find its way into the Indian economy.
According to CMIE, though the portfolio inflows are expected to be lower they will stay healthy at $26 billion, while the External Commercial Borrowings (ECB) are expected to remain high at $9 billion even though the one-time demand for overseas borrowings from telecom companies in FY 11 for spectrum payments would not be there in FY 12.
The overseas borrowings would be driven in the current year by the very high domestic interest rates and the low interest rates in the international markets, CMIE added.