Foreign direct investment into country will be impacted by the global financial turmoil as India's foreign exchange reserves dropped by close to $10 billion for the week-ended 10th October from the preceding week.
Speaking at a gathering of chartered accountants in New Delhi, on Saturday, commerce and industry minister Kamal Nath responded to a query, saying, "Of course, we will see the impact on our FDI inflows in the next six months," after having said earlier last week that India would exceed its target of $35 billion FDI inflowa into the country, this fiscal.
FDI inflows of $14.6 billion between January and May 2008 had registered a growth of 124 per cent over the same period last year, Nath noted that sentiments in the stock market had reversed since January 2008, saying the boom in our Sensex from over 20,000 in January and now were showed that there wasn't sufficient money to pour in the markets.
Faced with redemption pressures in the credit starved overseas markets, foreign institutional investors have withdrawn over $11 billion this year year, while the the rupee has come under intense pressure and lost over 20 per cent since April this fiscal.
As a result, the BSE benchmark Sensex has declined to half from over 21,000 in January to around the 10,000 plus levels, currently after having breached the 10,000-mark last week. The decline started with a dramatic fall on 21 January after the Sensex scaled all records to cross 21,000 on 8 January. Since then, despite some recovery, the index has been sliding and has een hovering around 10,000.
Nath said foreign institutuional investors have been pulling out of India in the last several weeks, which though did not reflects on India's fundamentals, showed the inter-connection.
If the FDI inflows decline, the rupee would weaken further.
Nath said the world's top exporter China expects a major demand contraction on account of lack of oredrs from the west, as the current crisis was not "confined to borders."