This document discusses foreign capital inflows and their impact on the Indian economy. It begins by defining capital inflows and explaining how they help finance domestic investment needs and current account deficits. It then outlines the components of capital account transactions, including foreign investments like FDI, FII, and loans. Graphs show trends in total capital inflows and the components of foreign investment and loans from 2007-2013. The document analyzes the impact of foreign investments on sectors, employment, and economic growth. It concludes by recommending measures to attract more stable capital inflows while strengthening macroeconomic stability and competitiveness.

1. FOREIGN CAPITAL INFLOW AND
GROWTH OF INDIAN ECONOMY
CA. Bineet Sundriyal
MBF -5 (New Delhi)

2. Contents:
 Introduction
 Components of Foreign Capital
 Capital Account: Inflows Analysis
 Analysis of Foreign Investments
 Impact on Indian Economy
 Recommendation

3. Introduction:
 Capital inflow means inflows from any country outside India for capital
transactions in India.
It tracks capital movement of investments and loans into and out of the
country.
It helps in financing the gap between domestic savings and capital
investment need of the Country.
When there is capital account surplus it means a country is receiving
more capital inflows. This results in increase in overall increase in BoP,
thereby resulting increase in country’s foreign exchange reserves.
Capital Inflows have direct impact at macro level. It facilitates stability at
macro level by impacting the exchange rates, interest rates, forex reserves
etc.

4. Introduction:
 It helps in financing Current Account deficit.

5. Components of Capital A/c:
Capital A/c
Foreign Investments
Loans
Banking Capital
Other Capital
Movement in
balances of foreign
central
banks
Foreign Direct
Investment (FDI)
External Commercial
Borrowing (ECB)
Foreign Institutional
Investor (FII)
External Assistance
NRI Deposits
Short Term Loans
Foreign currency
holdings

6. Capital Account: Inflows Analysis
120
100
Capital Account (A+B+C+D+E)
80
Foreign Investment (A)
60
Loans (B)
Banking Capital (C)
40
Rupee Debt Service (D)
20
Other Capital (E)
0
2007
-20
2008
2009
2010
2011
2012
2013*
* FY13 till December 2012

7. Analysis of Foreign Investments
60
50
40
30
Foreign Investment (A)
20
FDI
Portfolio Investment
10
0
2007
-10
-20
2008
2009
2010
2011
2012
2013*

8. FDI Equity Inflows

9. FII Flow in Equity & Debt

10. Impact on the Economy
 Volatility in the Capital Market
 Growth Rate
 Balance of Payment
 Employment Generation
 Infrastructure Development
 Global Competitiveness

11. Recommendations:
 Measure to attract more capital inflows
 Measures against corruption
 Measures to strengthen Rupee
 FDI in new Sectors
 Procedural ease
 Tax & Commercial Laws
1/25/2014

12. Thank You

13. What is Capital A/c Transactions?
Capital A/c
Transactions
Assets and Liabilities
outside India of a
person resident in
India
Including
Contingent
liabilities
Assets and
Liabilities in India of
a person resident
outside India