India sees third consecutive year of declining FDI inflows

In the past fiscal year, India experienced a decline in FDI inflows due to external factors and domestic investment saturation.

In addition, the FDI-to-GDP ratio fell as a result of increasing protectionism. Following the general elections, India is expected to introduce incentive policies to attract global investments.

PTI, Business Standard, and the Economic Times reported that data from the Department for Promotion of Industry and Internal Trade showed that FDI equity inflows into India experienced a slight downturn, dropping by 3.5% to US$44.42 billion in fiscal 2024 (April 2023 to March 2024), which is the third fiscal year in a row that India witnessed declining FDI inflows.

FDI inflows into major sectors fell over the past year, including services, computer hardware and software, telecommunications, automotive, and pharmaceuticals. Computer hardware and software continued to be the top receiving sector of foreign investments, accounting for 15% of total FDI inflow into India in fiscal 2024.

Despite a 31.56% fall in FDI inflow into India, Singapore remained the top investor source after the bilateral investment treaty between India and Mauritius was terminated in 2017. FDI from the US and Japan into India rose by 97.1% and 76.7%, respectively.

Geographically, Maharashtra, Karnataka, and Gujarat were the top investment destinations over the past year, accounting for almost 70% of the overall FDI inflow in fiscal 2024.

Business Standard quoted Madan Sabnavis, chief economist at Bank of Baroda, saying that the decline in FDI equity inflows can be attributed to a global reduction in investible funds and rising interest rates. Additionally, several sectors, including IT and startups, are experiencing investment saturation.

Mint quoted Teresa John, lead economist at Nirmal Bang, saying that the decline in FDI is a bit worrying and needs to be monitored, adding that creating the right policy environment and improving the ease of doing business is necessary amid competition from other countries such as Vietnam and Mexico.

Meanwhile, a column of The Diplomat noted that since 2016, the net FDI inflow-to-GDP ratio had fallen from 1.7% to about 0.5%, partly attributed to India's protectionism mindset. For example, the Indian government revisited its bilateral investment treaties in 2016, making it harder for foreign investors to resort to international arbitration.

Following the general elections that ended on June 1, the upcoming Indian government is expected to introduce fresh policy initiatives and approve investment proposals in key sectors like semiconductors.

Source: DPIIT, May 2024

Source: DPIIT, May 2024

Source: DPIIT, May 2024