According to the latest data from the Reserve Bank of India (RBI), foreign direct investment (FDI) flows into India rose 27.5% in April 2015-February 2016—to $42 billion from $33 billion in the year-ago period. FDI equity inflows, that is excluding reinvested earnings and other capital (parent-subsidiary debt transactions), alone rose 30% during this period.

This is welcome. At $38.5 billion in 2015-16 so far, inflows of FDI equity exceed the $30 billion received in April 2014-Febuary 2015, illustrating India’s investment potential even at times when global investment remains subdued overall.

Where is foreign investment headed? The distribution by sectors for total FDI flows via the Secretariat for Industrial Assistance/Foreign Investment Promotion Board and RBI routes is given in RBI’s Annual Report, 22 August 2015. Of the $24.5 billion received in 2014-15, $9.6 billion was invested into the manufacturing sector, $1.8 billion in construction and real estate segments, while $12.9 billion or about 53% of the total entered the services sector. The past trend of several years, i.e. at least half if not more of the FDI flows are attracted to the services segment still holds true, therefore.

Relative to 2013-14, when FDI flows into manufacturing stood at $6.4 billion, the 50% increase last year is not insignificant. But its share at 39.4% of total FDI in 2014-15 is a tad lower than the 41% achieved in 2011-12 and 2013-14.

The sector-wise distribution of FDI inflows for the year just ended, 2015-16, is still awaited. However, the Department of Industrial Policy and Promotion (DIPP) did give the profile of sectors receiving the highest FDI flows for the first three quarters in its quarterly FDI factsheet. As these are tentative figures, the total FDI equity inflow numbers may not match the RBI numbers, which in any case are for April-February 2016. But a first pass at the FDI-distribution profile given by the DIPP data shows that $29.4 billion of FDI equity flows were received in April-December 2015, against a $21 billion the previous year.

For a total of $18.4 billion of FDI equity inflow, $14.3 billion entered into services segments, viz. financial and non-financial, hotels and tourism, telecom, trading, computer software and hardware. Just $4 billion appears to have been invested into the manufacturing sector (sum of FDI flows in power, automobiles, chemicals and drugs & pharmaceutical industries).

How FDI is distributed across the economy matters. FDI in manufacturing, or the extent of it, is relevant from the standpoint of creating jobs and shifting workers from farms to factories. It is also important from the perspective of achieving the Make in India goal, which is to increase the share of manufacturing in gross domestic product to 25% by 2022; it was 18% in 2014. Perhaps the FDI inflow trends reflect a broader, global feature—manufacturing investment worldwide is subdued due to overcapacity, a slump in demand and prices that have triggered retrenchment and reallocation of resources. If that is the case, then India’s manufacturing dream may take a while to materialize.

Renu Kohli is a New Delhi based economist.

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