OREANDA-NEWS. Report by British High Commission New Delhi on latest economic developments - April 2016.

Growth in Foreign Direct Investment and Industry

Foreign direct investment (FDI) touched a new peak clocking £35.8bn — the highest ever FDI inflow in a fiscal, during AprilFebruary FY16. FDI rose nearly 15% over the previous year. A year before, foreign investment stood at £30.7bn. The government had brought in FDI-related reforms and liberalisation touching upon 15 major sectors of the economy by putting more FDI proposals in the automatic route in November 2015.

India received FDI equity worth £20.4bn during April-December period in FY16. Computer software and hardware sectors received £3.6bn while services sector accounted for £2.9bn. Automobile and telecom sectors received £1.1bn and £740m respectively. Region-wise, the National Capital Territory (comprising Delhi, part of Uttar Pradesh and Haryana) received £7.3bn while Mumbai got £3.6bn.

Following the trend with the positive FDI inflow, Industrial production grew at 2% in February after remaining negative for a quarter reflecting some improvement in the economy. Although there is an uptick in the industrial output in February, the manufacturing sector, which constitutes over 75% of the index, crawled at 0.7% as against a growth of 5.1% last year. The index had registered a growth of 4.8% last year.

The uptick in industrial output was mainly on account of improvement in mining, power and consumer durables. During April-February, industrial output grew at 2.6% compared with a growth of 2.8% in the year-ago period. Mining logged a growth of 5% as against a growth of 1.6% in same month a year ago. Power generation accelerated, growing 9.6% compared with 5.9% growth a year earlier. The output of consumer durable goods grew 9.7% in February as against a contraction of 3.8% in the same month a year ago. However, capital goods, a barometer for investment flow, contracted 9.8% in February compared with a growth of 8.3% in the year-ago period. While this is encouraging, the manufacturing sector remains a concern and the ongoing trend of IIP appears to be volatile.


After two straight years of deficient rains, the weather office has forecast above-normal monsoon showers this year, suggesting that food inflation is unlikely to shoot up in the current fiscal. Retail inflation, measured by the Consumer Price Index (CPI), eased to a six-month low to 4.83% (y/y) in March from 5.26% in February. CPI was at 5.25% last year. It is trending below the Reserve Bank of India’s (RBI) target of 5% by the end of the current financial year. The decline in retail inflation can be largely attributed to a reduction in food prices in March. Food inflation, eased to 5.21% in March, from 5.30% in February. The food index, which accounts for a large share in CPI, had edged up to 6.14% in March 2015.

Within the food index, pulses registered the sharpest rise - it was the only category that saw double-digit inflation. Within the non-food category, February inflation moderated to 3.38% in the fuel and light category, from 4.59% in March. A similar trend was observed in the transport and communicationcategories - 0.91% in March from 2.39% in February. Inflation eased in rural and urban areas. In towns, CPI-based inflation declined to 3.95% in March from 4.3% in February. The corresponding figures for rural areas were 5.7% and 6.05%, respectively, for March and February. Though the retail inflation has eased, food price fluctuations remain and maintain upward inflationary pressures.