Trends in External Cash Inflows Towards Developing Countries with Special Reference to India

Inflows of cash toward developing countries are that financial source which can be utilized for their development. First of all, we have to understand what are the main sources by which cash can flow toward developing countries, if we take the reference of India, India is getting cash and capital through export of goods and services, India Inc. are selling their shares and debentures to foreign institutional investors (FII) through ADRs and GDRs. Except this, Indian government’s main source of fund is loan which it has been taking from world bank since 1947 for India’s large expenditures. Indian Government has also opened the doors of direct foreign investment in India.

Now, we check out its trends. Trends are also good way to see whether inflow of cash is increasing or stable of decreasing with slow fluctuations of upwards. We have to depend on World Bank reports, RBI’s reports and Indian Govt. budget.

World Bank has recently issued his PDF file of 38 pages for showing the financial flows trends to developing countries. According to this report,” Total private and public cash inflow toward developing countries has reached up to $ 571 billion. But there are also increasing trend of risk for recovering loan from developing countries. Developing countries on the other side are trying to reduce risk by collecting foreign exchange reserve (Ref. of China foreign exchange policy). That is the reason foreign investors are tolerating the risk of all financial deterioration. They are ready to face fluctuation in interest rates, exchange rates and equity price.

We can divide cash inflows in India in following four categories:

1. Foreign share capital flow in India

In 200-2008, foreign share capital reached up to $ 108 billion which was received Indian companies from International capital market.

2. Financial debt from world bank

India had joined with World Bank in 1944. World Bank is increasing its financial help for India’s infrastructure and development. World Bank has agreed to give loan of $ 14 billion for 2009-2012 to India. This loan is being given under 66 active projects of India.

3. Foreign direct investment in India

SEBI has allowed foreign NRI and other foreign investors to invest directly in India without any limit. They can start any venture with Indian companies. They can buy India’s immovable properties. These foreign investors can also contract with Indian mutual fund providers. The trend is also positive because more and more FDI are buying India’s immovable properties and opening small and medium own business in India. Thus inflow of cash is from developing countries.

4. Cash inflow through export of India

India’s export is also source of cash inflow in India. In this year export of India has been increased by 61%.