The latest government data reveals a noteworthy decline in Foreign Direct Investment (FDI) inflows into India during the first quarter of the fiscal year 2023-24. The decline, amounting to 34%, saw FDI plummeting to $10.94 billion from $16.58 billion in the same period of the previous fiscal year. This downward trend was primarily influenced by reduced investments in key sectors such as computer hardware and software, telecommunications, automotive, and pharmaceuticals.
Challenging Trends in FDI Inflows
The data highlights a series of challenging trends in FDI inflows into India. The decline was not limited to the first quarter but also extended into the preceding months of the fiscal year.
In April, May, and June of the current fiscal year, FDI inflows amounted to $5.1 billion, $2.67 billion, and $3.16 billion respectively. Comparatively, these figures were $6.46 billion, $6.15 billion, and $3.98 billion in the corresponding months of the previous fiscal year.
Impact on Key Sectors and Countries
The contraction in FDI inflows had a significant impact on various sectors. Notably, sectors such as computer software and hardware, trading, telecommunications, automotive, and pharmaceuticals experienced a reduction in investments. Conversely, some sectors such as services, construction (particularly infrastructure-related activities), construction development, and the metallurgical industry saw growth in FDI inflows.
Global FDI Trends: Mixed Performance in Equity Inflows
1.Decline in FDI Inflows: FDI equity inflows from major countries have experienced a decrease. Countries like Singapore, Mauritius, the United States (US), the United Kingdom (UK), and the United Arab Emirates (UAE) have all reported reduced FDI equity inflows during the quarter under consideration.
2.Sharp Decrease: Specifically, investments coming from the Cayman Islands and Cyprus have seen a significant drop. In comparison to the same period of the previous year, FDI equity inflows from the Cayman Islands decreased from $450 million to $75 million, and from Cyprus, it plummeted from $605 million to $6 million.
3.Contrasting Trend: However, some countries have shown an opposite trend. FDI inflows from the Netherlands, Japan, and Germany have actually increased during this period.
The state-wise analysis of FDI inflows revealed disparities across different regions of India. While Maharashtra continued to receive the highest FDI inflow during the quarter, the amount decreased to $4.46 billion from $5.24 billion in the corresponding period of the previous year. Similarly, Karnataka witnessed a significant drop in FDI inflows, falling to $1.46 billion in Q1 FY24 from $2.8 billion in the same period of FY22-23.
Several other states and union territories also experienced declines in FDI inflows. States like Gujarat, Rajasthan, Delhi, Tamil Nadu, and Haryana reported reduced FDI inflows during the quarter. However, Telangana, Jharkhand, and West Bengal bucked the trend by recording growth in FDI inflows during the same period.
Explanations for the Decline
DPIIT Secretary Rajesh Kumar Singh attributed the decline in FDI inflows to several factors, including the global hardening of interest rates and worsening geopolitical situations. These external factors had an adverse impact on FDI inflows into India during the fiscal year 2022-23 as well. FDI equity inflows in that fiscal year witnessed a decline of 22%, amounting to $46 billion.
In conclusion, the significant decline in FDI inflows during the first quarter of FY24 raises concerns about the investment climate in India. While certain sectors and states demonstrated resilience, the overall trend suggests a need for policy adjustments and proactive measures to attract foreign investment and foster economic growth.