DPIIT says FDI flow into Tamil Nadu declines 25%, state refutes data

Foreign Direct Investment (FDI) inflow into Tamil Nadu, including Puducherry, dropped by 25 per cent in FY19  to $2.61 billion, from $3.48 billion  a year ago,  Department for Promotion of Industry and Internal Trade (DPIIT) data revealed. State government officials explained the drop in FDI, citing similar trends in other manufacturing states such as Karnataka, Gujarat and Maharashtra.

Tamil Nadu's main competitor in South India, Telangana's FDI increased to $3.46 billion (Rs 23,882 crore) in FY19 from $1.25 billion (Rs 8,037 crore) in 2018-2019. FDI inflow into Karnataka dipped to $6.72 billion (Rs 46,963 crore), from $8.57 billion (Rs 55,334 crore) a year ago

Investor-friendly policies of other domains and governance problems in Tamil Nadu may have kept investors away from the state, CARE Ratings said.  

Government officials, while refuting the data, claimed that enactment of Tamil Nadu Business Facilitiation Act improved ease of doing business and that the state had signed MoUs worth Rs 3 trillion in FY19. They pointed out that some of the other frontrunners in industrial investment have also seen drop in FDI.

Maharashtra showed a decline of 15 per cent in foreign equity inflow to $11.38 billion (Rs 80,013 crore) ibn FY19 from $13.42 billion (Rs 86,244 crore) a year ago, FDI Into the Ahmedabad region covering Gujarat declined by 16.1 per cent to $1.80 billion (Rs 12,618 crore) from $2.09 billion (Rs 13,457 crore).

"FDI flow is project-specific and also depends on the mix of foreign and local funding. So FDI data of one particular year is not sufficient to read the investment trends. One needs to see a longer period like five years to know the overall preference of foreign investors," said a senior official from Tamil Nadu government. Tamil Nadu is a manufacturing state and FDI in manufacturing is showing an overall decline in the country. India's FDI growth is driven by services, he explained. 

Overall FDI inflow declined to $44.37 billion (Rs 309,867 crore) in 2018-2019 from $44.86 billion in the previous year (Rs 288,889 crore) , said the official.

While Tamil Nadu has a large share of FDI, some inflows are accounted in Mumbai or Delhi where the headquarters of financial, insurance and banking companies are located. For instance, French automobile firm PSA Automobiles and Avtech Powertrain Pvt Ltd are investing $2.91 million and $33.23 million respectively for manufacturing of auto components and passenger cars in Tamilnadu, but are listed under New Delhi, since its corporate office location is in Delhi, while the component manufacturing project is coming up in Hosur and the car manufacturing unit is coming up in Tiruvallur. 

"While FDI in manufacturing is increasing, the rate of growth in 2018-19 has been very high in services. Tamil Nadu is at a disadvantage in this regard," said the official.

Besides, it would not be proper to compare Tamil Nadu with and other regions, since Andhra and Telengana are jointly accounted and New Delhi region consists of a larger Capital region (Part of Uttar Pradesh and Haryana together). Tamil Nadu's manufacturing FDI will grow if the Global Investors Meet (GIM) projects take off in the next three years, added the government sources. Foreign investments can also come in as lending and so it depends on each projects financial structure, added the officials.