India’s GDP growth beats estimates but FDI falls
Indian Prime Minister Narendra Modi got another boost before the upcoming general elections: a faster-than-estimated growth of the national economy. But at the same time, the government faces a decline in foreign direct investment inflows.
India’s GDP grew 8.4 percent in the third quarter (October-December) of the 2023-24 fiscal year, according to the latest data released by the Ministry of Statistics and Program Implementation. That could project the economy to a 7.6 percent rise in 2023-24.
Analysts had estimated GDP growth in the third quarter at or below 7 percent.
Modi said in a post on X last week: “Our efforts will continue to bring fast economic growth which shall help 140 crore Indians lead a better life and create a Viksit Bharat (Developed India)!”
The double-digit growth rate in the construction sector (10.7 percent), followed by a good growth rate in the manufacturing sector (8.5 percent) has boosted the GDP growth in fiscal year 24, according to the government.
Investment to upgrade India’s roads, bridges, airports, and seaports is a key reason for the GDP growth, said Amit K. Biswas, professor in the Department of Economics and Politics at VisvaBharati University in Santiniketan, West Bengal. Additionally, it is generating enormous demand for other machinery, iron, steel and cement, which is leading to GDP growth.
India’s federal government on Thursday approved the setting up of three chipmaking units worth $15.2 billion from firms, including India’s Tata Group and Japan’s Renesas.
Good agricultural production last year was a major contributor to the higher growth rate. India’s economy is still in recovery after the pandemic and the recovery phase could be faster, said Dibyendu Maiti, a professor at the Delhi School of Economics, New Delhi.
Reduced investment
However, foreign direct investment inflows in India fell by 13 percent to $32.03 billion in AprilDecember 2023. The decline was primarily attributed to reduced investment in sectors such as computer hardware and software, and telecom according to the latest government data.
The total FDI — which includes equity inflows, reinvested earnings and other capital — declined by about 7 percent to $51.5 billion during the period under review against $55.27 billion in April-December 2022, according to data from the Department for Promotion of
Industry and Internal Trade, a wing of the Ministry of Commerce and Industry.
Throughout the nine months of this fiscal year (April-December), FDI equity inflows reduced from major countries, including Singapore, the US, the UK, and the UAE.
The fall in FDI was due to factors including the slowing of FDI inflows into developing countries, and slackness in overall private investment during the current fiscal, said Biswajit Dhar, former professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi.
There is an overall drop in FDI because of the crisis in developed countries, and many developed countries are looking into the policy to improve their own production rather than investing in other countries, Maiti said.