Substantial FDI is in sectors not aligned to the spirit of the 'Make in India' campaign, Emkay says

India's emergence as the world's top foreign direct investment (FDI) destination in the first half of 2015 has been attributed to the one-year-old 'Make in India' initiative launched by Prime Minister Narendra Modi.



But domestic brokerage Emkay Global says that it will be "premature" to link rising FDI to the 'Make in India' initiative, which aims to transform the country into a global manufacturing hub."The recent media hype over India surpassing China and US in FDI inflows, is supposedly considered an affirmation of the success of 'Make in India'. However, data suggests that FDI flows have centered on exploiting domestic consumption, rather than stimulating domestic manufacturing," said Dhananjay Sinha and Kruti Shah of Emkay Global.The brokerage used data from various sources, including the Department of Industrial Planning and Promotion, which runs the 'Make in India' programme, to show that substantial FDI coming to India has been concentrated to e-commerce, automobiles and cash & carry businesses, which are "not aligned to the spirit of the Make in India campaign".These investments are aimed at tapping domestic consumption rather than boosting export, which is the thrust area of 'Make in India', the brokerage said.India received a total of $31 billion in FDI in first half of 2015, out of which the automobile sector contributed a cumulative of $6 billion to FDI, but the share of exports in total sales of passenger cars has remained around 20-25 per cent, Emkay said."While the automobile industry has been considered as an important driver of the 'Make in India' campaign, evidence suggests that most of the FDI flows, both historically and recent, have been aided to capture domestic demand rather than exports, diluting the essence of the campaign," the brokerage added.In fact, Maruti Suzuki and Hyundai - the country's largest and second largest MNC carmakers - have been reporting declining share of exports in total sales over the past 10-15 years, Emkay noted.The other sector that has attracted huge FDI inflows is e-commerce, where players such as Flipkart and Snapdeal have attracted significant venture capital and private equity investments. Ironically, e-tailing investments have fuelled imports of consumer electronic rather than encouraging manufacturing, Emkay noted."The steep rise in imports of consumer electronics since 2013 indicates that investments like e-tailing have stimulated imports rather than supporting domestic manufacturing or boosting exports," the brokerage said.In contrast, employment intensive sectors, such as construction, have seen sharp decline, while conventional manufacturing/ investment oriented sectors such as metals, power, oil and gas have seen muted flows, Emkay noted.