For First Time In a Decade, FDI Inflows Into India Fall

Foreign investment in India declined on the back of high inflation and weak demand in the US and Europe, while Indian companies also lowered investments in other countries during the financial year 2022-23.

New Delhi: Inflows of foreign direct investment (FDI) into India dipped for the first time in a decade, falling 16% to $71 billion (on a gross basis) during the financial year 2022-23 because of high inflation and weak demand in the US and Europe, according to the Times of India.

The report said that the latest data released by the Reserve Bank of India (RBI)’s monthly bulletin showed that during the last financial year, “after adjusting for repatriation and disinvestment by foreign investors, direct inflows were 27% lower at $41.6 billion”.

FDI inflows into India did not decline even in 2020, the peak of the COVID-19 pandemic when lockdowns were imposed, due to investments in big money projects like Reliance Jio and tech startups. But, according to TOI, “high inflation and weak demand in the US and Europe has dried up flows into startups, which were large recipients of surplus money floating globally”. The decline was visible for the most part of FY 22-23, the report added.

However, analysts remain optimistic about the future, telling TOI that once the global economic situation begins looking up, FDI inflows will also pick up.

“The slowdown in FDI has been a global trend in 2022, so this doesn’t come as a surprise… But India, as the fastest-growing economy in G-20, is structurally well-positioned to attract healthy FDI flows over the medium term. The government should take advantage of the ongoing diversification of global supply chains and attract foreign investments into India’s manufacturing sector,” D.K. Joshi, chief economist at the ratings agency Crisil, told the newspaper.

FDI inflows also declined on a net basis, falling 27.5% to $28 billion. Outward flows fell 23% to $13.6 billion in the last financial year, meaning Indian companies also lowered investments in other countries.

“In 2022, China saw FDI inflows rise 8% to $189 billion, according to preliminary data released in January,” the TOI report said.

The Hindu BusinessLine reported that the sectors which recorded the highest decline in FDI inflows in FY 22-23 compared to the previous year are manufacturing, computer services and communication services. “The major contributors towards the fall in inflows during the same period were the US, Switzerland, and Mauritius,” RBI officials noted, according to the report.