FDI inflow growth rate dips to 5-year low in FY18

Foreign direct investment (FDI) in India seems to be petering out. According to the latest data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows growth rate recorded a five-year low of 3 per cent at $44.85 billion in 2017-18. In contrast, foreign inflows had grown by 8 per cent in 2013-14, under the previous government, albeit after recording a negative growth of 38 per cent in 2012-13.The current government had managed to initially multiply the FDI inflow growth rate to 27 per cent in 2014-15 and 29 per cent in the following year, but it dived to just 8.67 per cent in 2016-17.

Experts say that it is critical to revive domestic investments and further ease of doing business in the country in order to attract foreign investors. According to Anil Talreja, Partner, Deloitte India, the low growth of FDI in the consumer and retail sectors can be mainly attributed to uncertainty and complexity of the FDI policy.

"While the government has taken substantial efforts in relaxing the regulations as well as removing ambiguities, global consumer and retail companies are still hesitant to take decisions to invest in India," he said, adding that although India has done considerably well in terms of moving up the ranking in terms of ease of doing business, it needs to reach a level that creates enthusiasm for the overseas investors.

Biswajit Dhar, professor at Jawaharlal Nehru University, pointed out that "The status of economy reflects the magnitude of the FDI in a country. In the past couple of years, we have seen decline in domestic investment rate and now, FDI is following that suit." He said that the government needs to take steps for reviving the domestic investment to attract foreign investors.

A recent UNCTAD report reported similar figures for India, stating that FDI decreased to $40 billion in 2017 from $44 billion in the previous fiscal. However, it added that outflows from India, the main source of the FDI in South Asia, more than doubled to $11 billion. "Downward pressure on the FDI and slowdown in global value chains are a major concern for policy makers worldwide, and especially in developing countries," said UNCTAD Secretary-General Mukhisa Kituyi.

Which sectors were the main beneficiaries of the FDI inflows in the last fiscal? The list includes services ($6.7 billion), computer software and hardware ($6.15 billion), telecommunications ($6.21 billion), trading ($4.34 billion), construction ($2.73 billion) automobile ($2 billion) and power ($1.62 billion).

Mauritius has emerged as the largest source of FDI in India with $15.94 billion in 2017-18 followed by Singapore ($12.18 billion), Netherlands ($2.8 billion), the US ($2.1 billion) and Japan ($1.61 billion).

Interestingly, the data showed that the FDI equity inflow of $44.8 billion in 2017-18 is the highest-ever for any financial year. FDI is important as India would require huge investments in the coming years to overhaul its infrastructure sector to boost growth. A decline in foreign inflows could put pressure on the country's balance of payments and may also impact the value of the rupee - which is already down around 7 per cent against the dollar this year.

Earlier in January, addressing the first PIO [Persons of Indian Origin]-Parliamentarians Conference in the Capital, Prime Minister Narendra Modi had quoted a higher FDI figure. He had said:  "India has moved far ahead ... A record $60 billion FDI came into the country last year".

With PTI inputs