FDI inflow in India is rising but not enough.

There has been a significant growth in foreign capital in India. From 1.1% of capital investments in FY05, foreign capital accounted for 8% in FY11. But is this likely to continue? Foreign inflows have been pouring into the country from foreign institutional investors (FIIs) and FDI (foreign direct investment). But what India really needs is the latter if it wants to take GDP growth to the next level. As today's chart of the day shows, FDI inflow in India has grown over the years but is still a small quantum. In fact, in the first half of 2012 (1HFY13) FDI has contracted 42.8% to US$ 10.4 bn, according to figures by the United Nations Conference on Trade and Development. The reasons are not hard to find. Lack of meaningful reforms and scandals rocked the government and compelled rating agencie s to downgrade India. Once this happens, cost of borrowings goes up making many projects unviable for foreign investors. Regulatory hurdles are also plenty. But all is not so bleak. One has seen investments shoot up in the Indian auto space in recent times. And it is hoped that FDI in retail should also pick up. But it goes without saying that the government will have to be more aggressive if the steady flow of FDI has to keep up in the coming years.