With the increasing outward orientation of Indian economy, foreign trade and investment is playing a major role in India's success story.

India's Commerce & Industry minister, Mr Kamal Nath, has stressed that India is likely to achieve 5 per cent share of the world's trade by 2020. "As a means to achieve this, an export target of US$ 200 billion has been set for 2008-09", he has stated.

Foreign investment was the biggest source of accrual to India's foreign exchange reserves in 2007-08 at US$ 44.8 billion, as against US$ 15.6 billion in the previous fiscal. Portfolio investment inflow amounted to US$ 29.3 billion as against US$ 7.1 billion in the previous fiscal, whereas foreign direct investment (FDI) pumped in US$ 15.5 billion as against US$ 8.5 billion in the previous fiscal.

According to the Reserve Bank of India (RBI), the accretion to the foreign exchange reserves was US$ 92.2 billion on a balance of payment basis (excluding valuation effects) in 2007-08. Other important additions to the forex reserves during the first quarter of 2008, include, External Commercial Borrowings (ECB) at US$ 22.2 billion; banking capital including non-resident Indian (NRI) deposits at US$ 11.8 billion; and short-term credit at US$ 17.7 billion.

By 2009, India's share in world trade is expected to reach 2 per cent, and a 1.5 per cent share in world merchandise trade. The merchandise exports target for the 2008-09 fiscal is US$ 200 billion, up from the target of 160 billion in 2007-08.

During the April-June period of 2008-09, India attracted total foreign investments of US$ 7,650 million. The foreign direct investment (FDI) stood at US$ 12,320 million. Outgoing portfolio investment was valued at US$ 880 million. In September-end 2008, the country's forex stood at almost US$ 291.82 billion, and during the first five months i.e., April to August 2008-09, the trade deficit during the period has shot up to US$ 49.1 billion from a level of US$ 34.5 billion in the corresponding months of 2007-08.

Estimated Capital Inflows in 2008-09

According to the economic outlook for 2008-09 released by the Prime Minister's Economic Advisory Council, total capital inflows in 2008-09 are estimated at US$ 70.9 billion. Aggregate FDI inflows are estimated at US$ 19.7 billion and portfolio inflows are likely to touch US$ 4.1 billion. Net inflows on account of loans are expected to be US$ 34 billion. Net banking capital inflow and inflows under "other capital" are likely to be more than adequate to finance the enlarged Capital Account Deficit (CAD), leaving about US$ 29 billion to accrue in the foreign exchange reserves of the RBI.

In its August report, the Reserve Bank of India has stated that FDI inflows in the first quarter of 2008-09 has touched US$ 10.073 billion, almost a billion more than the total FDI inflows (US$ 8.961 billion) in 2005-06. Furthermore, India is set to exceed the FDI target of US$ 35 billion during 2008-09. According to a senior official in Department of Industrial Policy and Promotion (DIPP), "The country will achieve about US$ 35-40 billion in the current fiscal. The first quarter has crossed US$ 10 billion. Last year, it was US$ 24 billion for the entire fiscal."

If the trend seen in the first quarter is sustained, India is likely to cross the US$ 40 billion mark in FDI inflow for the first time.

FDI

As per the global survey of corporate investment plans carried out by KPMG International, in 2008, India will see the largest overall growth in its share of foreign investment, and it is likely to become the world leader for investment in manufacturing. Its share of international corporate investment is likely to increase by 8 per cent to 18 per cent over the next five years, helping it rise to the fourth, from the seventh position, in the investment league table, pushing Germany, France and the UK behind.