Foreign direct investment into FDI FDI into India surpassed portfolio investment by almost $5.6bn in 2006-07, marking a significant change from past trends.

Incoming FDI was recorded at $21.19bn in 2006-07, while portfolio investments stood at $15.62bn, according to a Reserve Bank of India report on the international investment position (IIP) of India. The report compiles the annual IIP of India as of the end of March 2007 and is the official statement of the stock of external financial assets and liabilities of the country.

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The ratio of net IIP of India to GDP (at current price) has improved from -6.59% as of end-March 2006 to -5.28% as of end-March 2007.

But the increase in FDI compared with portfolio investment was the most noteworthy finding in the report. India has lagged behind competitor China in attracting greenfield investment projects, with portfolio flows accounting for a much larger share of India’s inward investment than as with China. However, India shows some signs of narrowing the gap somewhat with a steady rise in direct investment as China’s levels off.

During 2003-04 and 2004-05, portfolio investments in India were much higher than FDI inflows. According to the IIP report, FDI inflow during 2003-04 was $6.32bn as against portfolio investment of $12.01bn. Likewise, in 2004-05, FDI inflows were lower at $6.64bn as compared with portfolio investment of $8.94bn.

The cumulative portfolio investment of $80.25bn at the end of March 2007 was higher than the FDI inflows which totalled $72.33bn, the report said.

The net IIP of India has improved by about $2.68bn to -$45.33bn as of end-March 2007 from a level of -$48.01bn as of end-March 2006, said the bank.

Among external financial assets, reserve assets registered an increase of about $47.56bn as of end-March 2007 over end-March 2006, followed by direct investment abroad, which had witnessed an increase of about $11bn during the same period. The report further pointed out that the total reserve assets of the country at the end of March 2007 exceeded the entire external debt (about $155bn) by $44.15bn.