There have been some improvements India’s economic activities and the Government is making efforts to complete free trade agreements with some of the significant trading partners. The inflows from foreign portfolio investors have increased and currently highest in the last 20 months. There was a setback to the proposed data protection regime when the Government withdrew the Personal Data Protection Bill earlier this month.
Improvement in FDI to GDP Ratio – India’s foreign direct investment to gross domestic product ratio eased to 2.7% in fiscal year ending March. 31, 2022 from 3.1% in the previous financial year, according to government data. The FDI to GDP ratio, which is a metric that compares a country’s fund inflows as compared to its gross domestic product, was at 2.3% in fiscal 2018, Minister of Commerce and Industry Som Parkash informed the Lok Sabha, citing government data. “FDI inflows into a country depends on a host of factors such as availability of natural resources, market size, infrastructure, political and general investment climate as well as the macro-economic stability and investment decision of foreign investors,” he said. The government has in recent years implemented investor-friendly policy, wherein most sectors, except certain strategically important sectors, were opened for 100% FDI under the automatic route.
“Changes are made in the policy after having consultations with stakeholders including apex industry chambers, associations, representatives of industries/groups and other organizations. In the recent past, reforms in the FDI policy have been undertaken in sectors such as Insurance, Petroleum & Natural Gas and Telecom,” the minister said.
Increase in FPI Inflow – Foreign portfolio investors (FPIs) pumped in $6.4 billion in August, the highest in the last 20 months, as investors bet that a weak US economy would slow the pace of monetary tightening by the US Federal Reserve. A weaker dollar and possible reallocation of flows from China also helped India’s cause. Overseas investors have pulled out $76 billion from China till July this year, the most among emerging markets, as the country’s growth slowed sharply in the second quarter amid widespread lockdowns due to Covid-19. FPI sentiment had turned in July, after nine consecutive months of outflows, with flows of $0.6 billion. The US GDP contracted for a second successive quarter in Q2 and entered a technical recession in the process, leading market pundits to bet on a pause in rate hikes by October. The reading was that a recession would bring down commodity prices and inflation, obviating the need to jack up rates further. Whenever interest rates go up in the US, the emerging markets look like a riskier bet, leading to outflows. The reverse is true as well. The market has adjusted its rate expectations post the hawkish comments of the US Fed chair; it now expects US Fed Fund rate to climb to 4% by early 2023 and stay there in H1CY23. Energy prices still remain a big unknown for the Indian market and high valuations are not comforting, said experts.
FTAs Review – Commerce and industry minister Piyush Goyal recently held a meeting to review the ongoing negotiations for free trade agreements (FTAs) with various countries in a bid to expedite the talks and boost export prospects. The meeting comes at a time when demand from India’s key markets such as the US and the EU are expected to slow down due to recession there. Exports to China, the fourth-largest destination for India, crashed 31% in the June quarter from a year before. Given the strong external headwinds, Goyal has already asked industry to study various FTAs that the country has signed and identify areas where domestic suppliers have competitive edge so that they can boost exports. India is either negotiating or planning to start talks for a flurry of high-stake FTAs with key economies, such as the EU, the UK, Canada, Israel, members of Gulf Co-operation Council (GCC) and Australia. While New Delhi has clinched an interim deal with Canberra, talks for a full-fledged FTA could start soon. Together these economies (excluding the UAE, a part of the GCC, with which an FTA is already signed) contributed as much as $108 billion, or 26%, to India’s merchandise exports in FY22. Both India and the UK are eying a deal by Diwali this year (October 24).
Data Protection Law Withdrawn – The Personal Data Protection Bill, 2019 has been withdrawn by the Government of India earlier this month. Union Information Technology Minister Ashwini Vaishnaw announced the withdrawal of The Personal Data Protection Bill, 2019 in the Lok Sabha and stated that the government has decided to come up with a fresh bill that fits into the comprehensive legal framework with reference to the suggestions made by the Joint Committee of Parliament (JCP) on the Bill. Stating the reasons for withdrawal, the government said that “The Personal Data Protection Bill, 2019 was deliberated in great detail by the Joint Committee of Parliament, 81 amendments were proposed and 12 recommendations were made towards comprehensive legal framework on digital ecosystem. Considering the report of the JCP, a comprehensive legal framework is being worked upon. Hence, in the circumstances, it is proposed to withdraw The Personal Data Protection Bill, 2019 and present a new bill that fits into the comprehensive legal framework.” You can read Asia Law Portal’s coverage on the Data Protection Bill including the JPC report here, and here.