Dear Readers,

The Reserve Bank of India (RBI) recently released its monthly bulletin for January 2016 and it could be important for your exams.

For the financial year 2014-15, the bulletin contains three major articles on (i) Census on Foreign Liabilities and Assets of Indian Direct Investment Companies; (ii) Survey on International Trade in Banking Services; and (iii) Survey on Computer Software and Information Technology-Enabled Services Exports. We will look into the introduction, highlights and conclusion of the first article.


· The Census covers Indian resident firms that received Foreign Direct Investment (FDI) and/or made Overseas Direct Investment (ODI).

· The Census defines Direct Investment as “a core component of cross-border capital flows, where an investor residing in another economy has lasting management interest in an enterprise in the recipient economy, by making an investment that gives control (50% or more equity share) or a significant degree of influence (10% or more equity share) over the management of the enterprise”.

· A direct investor may be an individual or group, an incorporated/unincorporated enterprise (public or private) or a group of enterprises, government, trusts, etc.

· Significant changes in cross-border assets or liabilities may result in global imbalances and financial stability issues. Thus, the International Monetary Fund (IMF) has taken efforts to improve the availability and timeliness of cross-border investment data.

Major Highlights

· The census covered 17,642 companies, out of which 16,242 companies had outstanding FDI/ODI in their balance sheet in March 2015. Of these 16,242 firms, 84.2% had only inward FDI, 11.9% had only ODI and 3.9 % had bi-directional direct investment.

· Close to 98% companies that reported inward FDI were unlisted. The Own Fund of Book Value (OFBV) method was advised to them for market valuation. OFBV of equity investment is the share of non-resident equity holding in a company’s net worth. This net worth is the sum of paid-up equity capital, participating preference shares, reserves and surplus.

· The market value of FDI stock of the reporting firms in India increased by ₹4,567.1 billion (which includes valuation charges and investment flows) during 2014-15 and was ₹19,629.7 billion in March 2015, of which 94% or ₹19, 629.7 billion was held in equity.

· The ODI stock declined by ₹260.7 billion to ₹5,320.1 billion during this year. Hence, the ratio of outward to inward DI decreased from 37.1 % in March 2014 to 27.1 % in March 2015.

· The top 10 FDI and ODI partners of India, namely Mauritius, USA, UK, Singapore, Germany, Japan, Switzerland, the Netherlands, Republic of Korea and France, accounted for 70.6 % in ODI and 92.9 % in FDI.

· In inward DI, Mauritius had the largest share of investors (21.9 %), followed by the USA (16.9 %) and the UK (15.3 %)  

· In ODI, the major destination was Singapore (24.7 %), followed by Mauritius (15.0 %) and the Netherlands (13.0 %).

· DI companies also report their additional financial liabilities and assets separately in the FLA census, termed as ‘other investment’. These include claims and liabilities in terms of loans, currency and deposits, trade credit and other payable and receivable accounts with third-party non-resident entities. However, these exclude inter-company debt transactions (borrowing and lending of funds between direct investors and subsidiaries, associates, parent companies, sister companies and branches) that are included under DI.

· These ‘other investment’ liabilities of reporting firms summed up to ₹12,822 billion at the end of March 2015, and the corresponding overseas assets stood at 33.4 % of these liabilities (which was 35.0 % previous year).

· The Foreign Affiliates Trade Statistics (FATS) measure the commercial presence overseas by selling goods and/or services through foreign affiliates in the local economy. Unlike FDI statistics which include all foreign interests that amount to 10% or more voting power, FATS consist of all affiliates that are foreign-controlled subsidiaries (single direct investor’s holding is over 50% of equity).

· Exports summed up to 26.7% of total sales, while imports amounted to 46.7% of total purchase of Indian subsidiaries.

· Aggregate exports of foreign subsidiary firms surged by 15.2% to ₹5,637.4 billion. The major export-oriented sector was Information and Communication Services, in which exports accounted for 75.8 % of total sales.


· A large number of reporting companies in this FLA census are unlisted and thus, the market value of their investment was estimated using the OFBV method.

· Market value of DI by foreign firms in India kept on rising during 2014-15 owing to fresh net investment and gain in valuations.

· Inward FDI increased much faster than ODI growth during the year, which led to a decline in the ODI to FDI ratio at market value.

· The ratio of market value to face value of inward FDI at the aggregate level stood at 52 in March 2015. This ratio was much higher for services sector than the manufacturing sector because of factors like capital intensity, return on capital and future prospects.

Import share in purchase were
widely comparable for Indian subsidiaries abroad and foreign subsidiaries in
India. Export share in sales were more for foreign subsidiaries in India than
for Indian subsidiaries abroad.

These are the
major points to remember in the Census of Foreign Liabilities and Assets. If
you can understand these well, you can easily attempt questions pertaining to

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