New Delhi: The Indian economy is grappling with a slowdown in foreign direct investment (FDI). In 2022-23, FDI equity inflows dropped by 22% year-on-year to $46 billion, following a 1% contraction from the previous year.
However, the FDI equity inflow number looks slightly better when reinvested earnings and other forms of capital are taken into account, the New Indian Express reported.
In 2022-23, the FDI growth declined by 16% to $71 billion compared to a 3% increase to $85 billion in the previous year. In the current financial year till December 2023, the FDI in form of equity inflow was 13% lower y-o-y to $32 billion, the newspaper reported.
The finance ministry acknowledged this issue, attributing the dip in FDI inflows to a global slowdown and a rise in repatriation of investment.
“The slowdown in FDI growth is not a recent phenomenon. The slowdown has been setting in since 2016-17. In the 10-year period to 2022-23, the FDI grew at a CAGR of 6.6% compared to 27% in the previous 10-year period. The FDI (equity inflow, reinvested earnings and other inflows put together) as a percentage of nominal GDP in 2022-23 was 2.1% compared to 2.7% in 2021-22. The highest that India ever achieved was 3.5% in 2008-09. In recent years, 2020-21 saw India’s FDI/GDP ratio touching 3.1% largely due to contraction in GDP,” said the newspaper.
Between April and September of last year, India received a little over $10 billion in FDI – the lowest figure for the first half of a financial year since the 2008 global recession, according to RBI.
Analysts told The Print that ‘rigidities’ in doing business here, and India’s decision to terminate bilateral treaties are to blame.
Other factors why foreign investment into India has been so tepid in recent years include bureaucratic red tape, a poor record in contract enforcement, and relatively low labour productivity, reported the Diplomat. It further attributes another factor: India hasn’t been signing enough deals to facilitate foreign investment.
According to the Economic Times, the termination of numerous bilateral investment treaties and a shift towards protectionist trade policies have further dampened investor sentiment.
Efforts to rectify these issues include recent trade agreements with Australia, the United Arab Emirates, and the EFTA bloc. However, India’s approach to negotiations remains cautious, with an emphasis on state control and limited exposure to foreign competition, said the business daily.
