India Targets $35 Billion of Foreign Investment in 2008-09

Before the global financial meltdown, India received a record $14.6 billion in foreign direct investment (FDI) from April to August 2008, a 124 percent rise compared with $6.5 billion in the same period a year ago, reports Industrial Info Resources (Sugar Land, TX). The inflows in the first six months of 2008 stood at $22 billion. The FDI target for 2008-09 is estimated to be above $35 billion while the total inflows for the previous fiscal year were $24.57 billion.

In August 2008, funds totaling $2.32 billion were channeled to India, registering a 180 percent rise over the same period last year. The manufacturing sector, in particular, attracted $5 billion from April to August of this year, which was 41 percent higher than the inflows received for the period in 2007.

India continues to be the second most preferred destination globally for foreign investment after China, according to the World Investment Report 2008 by the United Nations Conference on Trade and Development (UNCTAD). India's FDI inflows of $22.95 billion for 2007 were the fourth largest in Asia after China, Hong Kong and Singapore.

The International Monetary Fund (Washington, D.C.) has slashed the economic growth forecast rate for India to 6.9 percent for the 2009 fiscal year. It is expected to slow down to 7.9 percent in 2008. Rising inflation, surging crude oil prices, impact on exports from developing countries, depreciating currency, high interest rates and crises in the capital markets have caused the international agency to revise growth forecast globally and for individual countries. India's gross domestic product (GDP) growth was projected earlier at 8 percent for 2008 and 7.8 percent for 2009. In 2006-07 India's GDP grew at 9.6 percent. The GDP projections for 2010 and 2011 stand at 7.7 percent and 7.9 percent, respectively, provided inflation is kept under control. Overall, the outlook for economic growth in India, driven largely by domestic consumption, is positive, if slower compared to the previous years.

The steel sector in India is adversely affected by the weakening global steel prices, making imports dearer with the depreciating Indian Rupee. The projected target of having an installed capacity of 100 million tons per year of steel production by 2012 is likely to be missed as expansion plans are stalled. The country's three steel majors — JSW Steel Limited (BSE:500228) (Mumbai), Jindal Stainless Limited (BSE:532508) (Hissar, Haryana) and Bhushan Steel Limited (BSE:500055) (New Delhi) — have decided to put their expansion plans on hold until the financial crisis weathers out.

Eight infrastructure sectors are set to attract over $333 billion in investment during the next five years. Financing the projects is perceived to be a challenge in the current financial situation, but it is not likely to impact investments in the long run as infrastructure projects have a higher rate of return over longer periods of time.

Engineering, auto, capital goods and construction sectors are likely to benefit from falling metal prices, steel in particular. Decreasing inflation followed by an expected dip in interest rates will be favorable to the auto sector. Funding new projects through equity and debt is likely to be challenging for the engineering and the capital goods sector. This makes for a mixed reaction from different sectors of the Indian industry on the impact of the current global credit crisis.