labels: finance - general, economy - general
Indian foreign investments gain momentumnews
23 November 2005

With the economy on a growth trajectory, it is heartening to note that the country's international investment position (IIP) is also showing resilience. Provisional figures for March 2005, released by the Reserve Bank of India indicate that the country's net IIP (difference of liabilities over assets) has been gradually improving for the last few years.

International liabilities refer to what the country owes to the outside world while the international assets refer to its investments made into other countries. When the total assets exceed total liabilities, it is termed as a positive position. Similarly when liabilities exceed assets it denotes a negative position.

A favourable net IIP commands respect for the country in the global financial for a, increases its investment rating as a whole, facilitating finer interest rates for the country's sovereign as well as corporate borrowings or floats in the international market.

Traditionally, India has always had a negative net position only. However, a cursory look at the figures in the last few years, indicate a clear favourable trend - the net negative position is gradually coming down (see table).

An accumulated net negative IIP of Rs337,286 crore in March 2002, was brought down to Rs178,930 crore by end March 2005, indicating a reduction of 46.95 per cent in three years.. An impressive growth in its assets portfolio contributed significantly to this improvement.

Net International Investment Position

(Rs. in crores)
Heads 2002 2003 2004 2005*
Total Assets 359249 454138 595103 740497
Total Liabs 696535 741540 805988 919427
Net IIP -337286 -287402 -210885 -178930
* Provisional figures

Total assets more than doubled during this three-year period - from Rs359,249 crore to Rs740,497 crore indicating a cumulative growth of over 106 per cent. The quality of the assets also improved with the major increase being reported in the Reserve assets category.

Total 'reserve assets' shot up from Rs267,014 crore to Rs619,116 crore, indicating a significant growth of 131.86 per cent. The more than doubling of foreign exchange holdings (from Rs249,119 crore to Rs593,121 crore) boosted the total 'reserve' position. Indian 'direct investments' abroad also grew by 114 per cent, from Rs19,551 crore to Rs41,866 crore while portfolio investments improved by 10.57 per cent - from Rs3,188 crore to Rs3,525 crore.

Details of Assets and Liabilities

(Rs in crores)

Heads

2002

2003

2004

2005*

(provisional)

Direct Investment

19551

27696

30756

41866

Portfolio Investment

3188

3719

3290

3525

Other Investment

69496

61253

70927

75997

Reserve Assets

267014

361470

490129

619116

Total Assets

359249

454138

595103

740497

Direct Investment

124044

148440

169888

194757

Portfolio Investment

153915

154086

189956

242699

Other Investment

418576

439014

446144

481971

Total Liabilities

696535

741540

805988

919427

* figures

In spite of a surge in the FDI portfolio, the growth in total liabilities is relatively lower (32 per cent) as compared to the growth in assets (46 per cent). Total liabilities went up from Rs.6,96,535 crore to Rs.9,19,427 cr. All the three segments of India's liabilities -direct investments, portfolio and other investments into the country - contributed almost equally, in rupee terms, to this growth. Direct investments moved up to Rs194,757 crore (Rs124,044 crore), portfolio investments to Rs242,699 crore (Rs153,915 crore) and other investments to Rs.4,81,971 crore (Rs418,576 crore).

Going by the present indications, chances are that the country's net IIP could turn positive in the next couple of years from now. And with more and more corporate houses acquiring overseas companies or investing abroad, a favourable IIP would enable them to scout for more international funds at better rates. Bright days are ahead for the country as a whole.



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Indian foreign investments gain momentum