Darling of world investors, but FDI falls to 10-year low

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Though the markets have been celebrating the return of foreign portfolio investors in the Indian bourses, Foreign Direct Investment, the real impact of which is felt in asset creation and employment, fell in India for the first time in a decade. On a gross basis, the fall has been a sharp 16% dragging down the quantum of FDI in 2022-23 to $71 billion.

Reports said that if repatriation by foreign companies and disinvestment in Indian operations are taken into account, the drop is even more dramatic 27%.

If the outbound FDI – Indian companies investing abroad – is taken into account, the drop in net FDI, too, was sharp 27.5%. The net FDI inflow to the country was $28 billion in 2022-23.

The amount of direct investment that Indian companies made abroad dropped 23% to reach $13.6 billion.

To explain the dip in FDI, it has been pointed out that the economic slowdown in the developed economies, the surging inflation in these economies as their central banks try to tighten liquidity and the shrinkage of demand have all contributed to the dipping FDI in India that is continuously looking for opportunities to align itself with the major supply chains in the world by attracting manufacturing operations on its soil.

What stands out is that India has been a darling of the investors who have continuously poured in more and more FDI over the past few years, including the Covid-paralysed 2020. Experts point out that even in that eventful year, investments attracted by start-ups and Jio from the house of Reliance helped the FDI graph point northwards.

D K Joshi, chief economist of Crisil, a ratings agency, felt confident that the country is well placed to attract FDI in the medium term, since its economy is the fastest growing in the G20. Asserting that economic slowdown in the west was a dominant theme in 2022, he said the dip did not come as a surprise and that the government should exploit the diversifying global supply chains and attract FDI in the manufacturing sector.

Incidentally, the FDI that flowed into China last year rose 8% to reach $189 billion.

However, India had a consolation point – it attracted the highest FDI from MNCs in R&D.