In a significant development for Odisha, inflow of Foreign Direct Investment (FDI) has hit a near-decade high in 2017-18. The FDI inflow that was in a free-fall since 2009-10 got a booster dose as in 2017-18 as the State received an eight year high of nearly US $65mn.
Significantly, Odisha received mere US $12mn in 2016-17 after posting a marginal rise from US $ 9mn in 2014-15. It needs reminding that Odisha topped country in FDI inflow in 2009 vis-a-vis cornering mere 0.86 per cent of FDI inflow in 2018-19. Odisha now figured at 12th among 16 major FDI destinations. Among neighbours, West Bengal is ahead of Odisha, reveals the RBI data.
Odisha’s fall from grace is being looked in conjunction with declining charm of metallurgical sector. Odisha, though, still cornered significant FDI inflows via Nalco and SAIL but has to look beyond the metallurgical sector for FDI.
According to a senior RBI research officer here, metallurgical sectors (aluminium, steel) don’t have the high potential for FDI inflow as it is mostly dominated by public sector. Moreover, country’s largest FDI receiver is services sector and Odisha has a very poor footprint as few financial, non-financial and business outsourcing institutions with their headquarters are here, he added.
But Odisha could move to top-5 if it aggressively focuses on IT sector, trading (export-import), infrastructure, telecommunications, hotels, tourism and power (renewable + non-renewable). Though Odisha has potential for automobile industry, lack of efficient manpower was its biggest shortcoming. Result: It loses out in FDI race, he observed.
Odisha’s downturn in FDI destiny post 2009 was all the way linked to cyclical slowdown in metallurgical sector, the State’s mainstay, when the current flavour of FDI in the country is new-age industries and service sectors. This is the reason why North-Eastern States, where services and new age sector have got a fillip in recent years, saw FDI inflow zoomed by a whopping 2,031 per cent between 2013-14 and 2017-18.
According to the RBI data, services (financial and non-financial) bagged the highest FDI totalling to around US$ 6,708mn or 15 per cent of cumulative FDI equity inflows in 2017-18. Telecom followed with a net inflow of around US $ 6,211mn. Computer software and hardware followed it by netting around US $ 6, 153mn equity inflows. Significantly, the FDI inflows to these two sectors have posted a high of around 500 per cent rise during period 2013-2018.
Interestingly, it has been observed that FDI equity inflows got traction to the sectors that have a tremendous growth potential or employ high skilled labour force or have high demand or that which give higher returns to investors.
“The State needs to diversify its services sector and has to establish more software technology parks, satellite towns, smart cities, hospitals, educational institutions, hotels etc,” the RBI official indicated and added that energy sector (renewable and non-renewable) holds high potential for FDI inflow to Odisha as it guarantees higher rate of return to investors.
Moreover, according to a RBI evaluation report, an industrial policy laying emphasis on new-age industries like telecom, software/hardware, infra construction, drugs and pharma would necessitate a sound economic ecosystem which together with an easy business climate could act like a force multiplier to growth leading to further diversification of services sector in State. Result: More equity investments via FDI to State.
Prasanta Patnaik