Foreign investors pull out $39 billion in FY17

Foreign investors have taken back home a record $39 billion in FY17 from various investments and lending in India. But unlike in the past, it may not be a cause of concern as India is witnessing strong capital flow as these out flows may in fact help rein in the value of the rupee. Of the $39.2 billion of investment income transferred back home by foreign investors, $6.4 billion is transfer of profits and dividends earned back home on local investments and $12.3 billion is reinvested earnings, according to the data on ‘invisibles’ in the balance of payments, released by the Reserve Bank.Besides this, other major item of outflow is $5.6 billion interest on NRI deposit and $12.8 billion as interest on overseas borrowings.

“The bulk of the rise in income repatriated are dividends and profits from FDI and FPI eq uity investments, but rein vested earnings have also risen shar ply,” said Saugata Bhattacharya, chief economist, Axis Bank. “In addition, a gen eral tightening of tax com pliance in home countries, especially OECD, might also especially OECD, might also be adding to the repatria tion.”

From a market perspective, a strong rupee could have contributed to higher repatriation by foreign investors as there could be apprehensions that the rupee could weaken. “Also, expectations in the previous years that the rupee might weaken would have accelerated outflow, but this will m i t i g at e going forward ,” Bhattacharya said.

Economists often raise concern when such outflow, which are part of the current account in the balance of payments, rise as it could widen the current account deficit, an indication of weak external sector balance sheet.

But this time round, economists are allaying such fears as the country has been witnessing strong forex inflow. Foreign exchange reserves are at a new high of $389 billion, adequate to fund over 10 months’ imports.

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