The repatriation of dividends and profits hit a snag in FY23 where the payments of foreign direct investment were almost negligible, and also lowest in at least the last 15 years. Total repatriation of FDI stood down by 82 percent year-on-year, during the year. The situation continued as FY24 began with repatriation of dividends and profits on FDI. Bloomberg had earlier reported that at least $1-2 billion earnings of the MNCs were trapped in the banking system due to dollar shortage.
The significant decline in the repatriation of profits and dividends by the multinational companies was witnessed due to the fragile foreign exchange reserve position in the country and the resultant curbs by the central bank on dollar outflow including the restrictions on imports to support balance of payment back in FY23. Moreover, the decline in MNC payments was also due to the weak and debilitating economic condition of the country as companies witnessed weakness in profitability and hence a decline in dividend payments. Delay in the IMF deal also added to the volatility during the year. The decline in repatriation was felt across companies from almost all sectors including power, telecom, transport, energy or food and beverages. Though the companies had faced a squeeze in repatriation, the scale seen in FY23 was a surprise for many.
However, the situation improved in August 2023, and the outflow of profits and dividends by foreign investors witnessed a whopping rise of over 300 percent year-on-year in 5MFY24 to $491 million. This rise in repatriation has come on the back of easing controls on capital flow that were imposed in FY23 to limit the outflow of foreign exchange from the country. Also, the IMF agreement paved way for some stability in foreign exchange reserves.
During the five months of FY24 so far, the highest repatriation of dividend and profit took place in October-23 of $261 million on FDI. The month saw the highest payment since July 2020, and also an exponential growth during the month on a year-on-year as well as month-on-month basis. However, November repatriation on FDI was down by 21 percent year-on-year. Overall the growth in repatriation has been noticeable with prospects of improvement in coming months.
The move to relax the ban on the outflow of dollars is crucial for boosting foreign direct investment. Not only did the controls on capital flows affect the existing foreign investors, but it also tainted the investment landscape that has already been battling several challenges.
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