U.S. one-hundred dollar bills are arranged for a photograph in Hong Kong, China. (Photographer: Xaume Olleros/Bloomberg)

FDI Growth Rate Hits Five-Year Low In Last Financial Year

Foreign direct investment in India seems to be petering out with the growth rate recording a five-year low of 3 percent to $44.85 billion in financial year 2017-18.

Foreign inflows in the country grew 8.67 percent in 2016-17, 29 percent in 2015-16, 27 percent in 2014-15, and 8 percent in 2013-14, according to latest data released by the the Department of Industrial Policy and Promotion. FDI inflows recorded a negative growth of 38 percent in 2012-13.

Experts said it was critical to revive domestic investments and further ease of doing business in the country to attract foreign investors.

“The status of the economy reflects the magnitude of the FDI in a country. In the past couple of years, we have seen a decline in domestic investment rate and now FDI is following suit,” Biswajit Dhar, professor at Jawaharlal Nehru University said. The government needs to take steps to revive domestic investment to attract foreign investors, he added.

Also read: India Sees Worst Foreign Fund Outflow In A Decade

A United Nations Conference on Trade and Development report too has recently stated that FDI in India decreased to $40 billion in 2017 from $44 billion in 2016. However, outflows from India, the main source of FDI in South Asia, more than doubled to $11 billion, the report said.

UNCTAD Secretary-General Mukhisa Kituyi said, “A downward pressure on FDI and slowdown in global value chains are a major concern for policymakers worldwide, and especially in developing countries.”

The main sectors that received maximum foreign inflows in the last financial year include

  • 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
  • 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 U.S. ($2.1 billion) and Japan ($1.61 billion).

The data showed that FDI equity inflow of $44.8 billion in 2017-18 is the highest ever for any financial year.

FDI is important as India requires huge investments 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.

Also read: Julius Baer’s Faith In Indian Stocks Unshaken Despite High Foreign Fund Outflow