FII decline has hit key Indian sectors: NYT

May 5th, 2009 - 6:48 pm ICT by ANI  

New Delhi/Gurgaon, May 5 (ANI): The decline in foreign investment in India has taken a huge toll on sectors like real estate, manufacturing, infrastructure and even art, which was bolstered by demand from globalization’s nouveau riche here and abroad.

In the last quarter of 2008, the Indian economy’s growth rate plummeted to about 5.3 percent, the lowest in five years. While consumer demand, particularly in the countryside, has kept the economy growing, the sudden slowing in the flow of foreign funds will make it harder for the country to grow fast enough to pull hundreds of millions of people out of stifling poverty.

A New York Times report reveals that India’s phenomenal growth of the last five years was powered in large part by huge injections of cash and investment from abroad.

Investment accounted for about 39 percent of the country’s gross domestic product in fiscal year 2008, up from 25 percent five years ago. At its peak, more than a third of investment came from abroad, according to Credit Suisse. But in the last three months of last year, foreign loans and direct investment fell by nearly a third, to their lowest level in more than two years.

In a recent report, the International Monetary Fund said Indian companies were among the world’s most vulnerable, after American firms, because they borrowed aggressively during the boom.

“If India wants to go back to the 8 to 9 percent growth rate, private investment and low cost of capital is essential,” the NYT quotes Jahangir Aziz, the chief economist for India at JPMorgan Chase, as saying.

Indian policy makers say they believe the country will grow at 6 percent in the coming year, but the I.M.F. forecasts growth of 4.5 percent.

After a wrenching 58 percent drop in the Indian stock market last year, the market is up 42 percent since its March low and some foreign money has started to flow into equities. But economists like Aziz say the government needs to do a lot more. (ANI)

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