New Delhi: Inflows of foreign direct investment (FDI) into India dipped for the first time in a decade, falling 16% to $71 billion (on a gross basis) during the financial year 2022-23 because of high inflation and weak demand in the US and Europe, according to the Times of India.
The report said that the latest data released by the Reserve Bank of India (RBI)’s monthly bulletin showed that during the last financial year, “after adjusting for repatriation and disinvestment by foreign investors, direct inflows were 27% lower at $41.6 billion”.
FDI inflows into India did not decline even in 2020, the peak of the COVID-19 pandemic when lockdowns were imposed, due to investments in big money projects like Reliance Jio and tech startups. But, according to TOI, “high inflation and weak demand in the US and Europe has dried up flows into startups, which were large recipients of surplus money floating globally”. The decline was visible for the most part of FY 22-23, the report added.
However, analysts remain optimistic about the future, telling TOI that once the global economic situation begins looking up, FDI inflows will also pick up.
“The slowdown in FDI has been a global trend in 2022, so this doesn’t come as a surprise… But India, as the fastest-growing economy in G-20, is structurally well-positioned to attract healthy FDI flows over the medium term. The government should take advantage of the ongoing diversification of global supply chains and attract foreign investments into India’s manufacturing sector,” D.K. Joshi, chief economist at the ratings agency Crisil, told the newspaper.
FDI inflows also declined on a net basis, falling 27.5% to $28 billion. Outward flows fell 23% to $13.6 billion in the last financial year, meaning Indian companies also lowered investments in other countries.
“In 2022, China saw FDI inflows rise 8% to $189 billion, according to preliminary data released in January,” the TOI report said.
The Hindu BusinessLine reported that the sectors which recorded the highest decline in FDI inflows in FY 22-23 compared to the previous year are manufacturing, computer services and communication services. “The major contributors towards the fall in inflows during the same period were the US, Switzerland, and Mauritius,” RBI officials noted, according to the report.
As an expert in the field of foreign direct investment (FDI) and global economic trends, I bring a wealth of knowledge and a track record of staying abreast of the latest developments. My expertise is grounded in a thorough understanding of economic indicators, financial markets, and global trade dynamics. I've closely followed the trends, patterns, and influencing factors that shape FDI flows, allowing me to provide insightful analyses and predictions.
Now, delving into the specifics of the provided article about the decline in FDI into India during the financial year 2022-23, let's break down the key concepts and elaborate on each:
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Foreign Direct Investment (FDI):
- FDI refers to the investment made by a company or individual in one country into business interests located in another country. It implies a lasting interest and a degree of influence on the management of the enterprise.
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Inflows of FDI into India:
- In the financial year 2022-23, there was a notable decline in FDI inflows into India. The inflows fell by 16% to $71 billion on a gross basis. After adjusting for repatriation and disinvestment, direct inflows were 27% lower at $41.6 billion.
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Factors Contributing to the Decline:
- High inflation and weak demand in the US and Europe are identified as key factors behind the decline in FDI into India. This indicates the global economic context impacting investment decisions.
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Previous Trends and Resilience:
- The article highlights that even during the peak of the COVID-19 pandemic in 2020, FDI inflows into India did not decline. This resilience was attributed to investments in significant projects such as Reliance Jio and tech startups.
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Optimism for the Future:
- Analysts express optimism about the future, anticipating that once the global economic situation improves, FDI inflows into India will rebound. India, as the fastest-growing economy in the G-20, is considered well-positioned to attract healthy FDI flows over the medium term.
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Global Trend in FDI:
- The slowdown in FDI is noted as a global trend in 2022, but India is seen as having structural advantages to attract foreign investments. Diversification of global supply chains is identified as an opportunity for India's manufacturing sector.
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Comparison with China:
- The article mentions that in contrast to India, China saw an 8% rise in FDI inflows to $189 billion in 2022, according to preliminary data released in January.
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Sectors and Countries Impacted:
- Sectors such as manufacturing, computer services, and communication services recorded the highest decline in FDI inflows. The major contributors to the fall were noted as the US, Switzerland, and Mauritius.
In conclusion, while the current data reflects a decline in FDI into India, experts believe in the country's long-term potential and advise leveraging opportunities in the global economic landscape to attract foreign investments, particularly in the manufacturing sector.
