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FDI surge in services sector propels India's GDP

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March 7
2:42 AM 2016

Inflows of foreign direct investments (FDI) into services sector is strengthening India's gross domestic product (GDP). The services segment contributed over 60 percent to India's GDP. FDI accounted for 17 percent of the total country's FDI in the services segment. The overall FDI growth was 37 percent for nine-month period of 2015.

Foreign direct investment in services sector rose 85.5 percent to $4.25 billion (INR 28,573.81 crore) for April -December in 2015. The services sector including banking, insurance, outsourcing, research and development (R&D), courier and technology testing segments recorded $2.29 billion foreign direct investment during the nine-month period of 2014, according to the latest data from Department of Industrial Policy and Promotion (DIPP).

DNA India reports that after the services sector, other major industrial sectors that received considerable FDI inflows were computer software and hardware, trading, automobile and chemicals sectors. Computer software and hardware received $5.3 billion FDI, trading sector recorded $2.71 billion, automobile segment received $1.78 billion and chemicals sector got $1.19 billion foreign direct investment during the nine-month period of 2015. 

Foreign direct investment surged 37 percent during April-December 2015 period to $39.32 billion (INR 2.64 lakh crore) from $28.78 billion (INR 1.93 lakh crore) in previous corresponding period. Indian government is optimistic on THE future course of FDI inflows as it's banking on liberal foreign investment policies announced in latest Union Budget-2016. 

GDP growth rate is forecast at 7.6 percent for 2016 financial year. The Central Statistics Office (CSC) predicts encouraging GDP growth rate as manufacturing sector is picking up. India recorded 7.3 percent GDP growth rate during the third quarter. Despite this slowdown, India's GDP growth rate for a full financial year of April 2015-March 2016 is forecast to be 7.6 percent by Central Statistics Office. Indian government has made a forecast of 7-7.5 percent growth rate. The manufacturing sector is recovery encouragingly as input costs are dropping fast in the wake of slump in global commodities markets, as reported by LiveMint.

International Monetary Fund (IMF) has retained its growth forecast for India at 7.5 percent for 2016-17 financial year. Indian economy is doing very well on the strength of domestic market, observes DJ Joshi, Chief Economist at Crisil Ltd. Now, what's required for the country is support from recovery in rural markets. 

Deccan Chronicle further adds that India's Finance Minister Arun Jaitley has announced more reforms on foreign direct investment in sectors such as insurance, pension, asset reconstruction companies (ARCs) and stock exchanges. FDI is allowed into insurance and pension segments via automatic route with a cap of 49 percent as against the previous bar of 26 percent.

Foreign investment is very important for India as it requires $1 trillion worth of funds (INR 67.23 lakh crore) for developing infrastructure including ports, airports and highways. The encouraging inflows of FDI will also improve the balance of payments (BoP) position of the country. It'll also strengthen Indian currency Rupee value against US dollar and other global currencies.

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