‘Drop in FDI mirrors global trend’

Net FDI inflow into India dropped 31% during the first 10 months of 202324; the Finance Ministry, however, argues that gross FDI dipped just slightly from $61.7 bn. to $59.5 bn. and that the decline in net FDI was only due to repatriation of funds

The decline in India’s net foreign direct investment (FDI) inflows, which had dropped almost 31% to $25.5 billion over the first 10 months of 202324, was in line with the slowdown in such investments to developing countries, the Finance Ministry has said, while holding out hope for an uptick in investments in this calendar year.

While overall global FDI flows rose 3% to an estimated $1.4 trillion in 2023, economic uncertainty and higher interest rates did affect global investment, reflected in FDI flows to developing countries falling by 9%, the Ministry said in its February review of the economy’s performance.

“Mirroring the slowdown in FDI flows to developing countries, gross FDI inflows to India also dipped but only slightly in the period April 2023January 2024 [from $61.7 bn. to $59.5 bn.]. In net terms, the comparable figures were $25.5 bn. vs. $36.8 bn. The contraction in net inflows was more due to an increase in repatriation; the contraction in gross inflows is negligible,” the Ministry noted.

While a modest increase in global FDI flows is likely this calendar year, thanks to a decline in inflation and borrowing costs in major markets which may stabilise financing conditions for international investment, there are still significant risks, the Ministry said.

These risks include geopolitical risks, high debt levels accumulated in many countries, and concerns about further global economic fracturing, it said.

Citing an UNCTAD report, the Ministry said that despite the drop in FDI inflows, the country witnessed “a stable number of new project announcements” keeping it in the top 5 destinations for global greenfield projects. The Netherlands, Singapore, Japan, the U.S.A. and Mauritius account for about 70% of the total FDI equity inflows into India, the Ministry added.