His ‘Vibrant Gujarat’ summits may have earned him a reputation for being foreign investor-friendly. But numbers suggest that the Modi factor may have greater pull wooing foreign portfolio investors than FDI.
Gujarat received over ₹40,000 crore of foreign funds between 2004 and 2013. This was equivalent to approximately 4.6 per cent of total FDI flows of ₹8.9 lakh crore into the country during the nine-year period. But a closer perusal reveals that Modi’s performance has slipped over the past five years vis-à-vis competitors in other States. Gujarat accounted for 7.4 per cent of FDI across India from 2004 to 2009, but the State only had a 3.3 per cent share of inward FDI from 2009 to 2013.
In contrast, Tamil Nadu ratcheted up its share from 5.3 per cent to 7.1 per cent, while Delhi’s slice of the pie grew from 14 per cent to 21.4 per cent. Maharashtra, the top State for FDI, also witnessed a slide in its share, with the proportion falling from 35.5 per cent to 32.1 per cent. Inflows into Maharashtra, nevertheless, almost touched the ₹3-lakh-crore mark between 2009 and 2013. Plus, there is the BJP’s rather indecisive stance on FDI. While it clearly opposes FDI in multi-brand retail, it has taken rather an ambiguous position on FDI in insurance and other sectors, stressing that it would consider FDI only where it does not impact domestic industry.
Foreign portfolio investors are, on the other hand, clearly rooting for a new Government led by Modi. Shortly after Modi entered the race for the top political office in the country, investment bank Goldman Sachs upgraded its rating on India from underweight to market weight, signalling its view that a win for the BJP-led National Democratic Alliance in the 2014 elections would bode well for the country. Foreign institutional investment in India picked up since Modi’s candidature for the PM’s post was announced in September 2013. During the October 2013-March 2014 period, fresh FII inflows worth $10.1 billion came into the country, compared with net investment of $13.6 billion in equities during January-September, 2013.
Some may be quick to de-link Modi from this development, citing the shrinking current account deficit and the rising rupee as the primary reasons for the recent optimism. Going forward, apart from a stable Government and predictable policymaking, what matters in wooing foreign investors is marketing skills that can showcase the country’s strengths to foreign investors. The BJP, even its opponents will admit, is better at this than the Congress.