Foreign Direct Investment Declines By 47 Percent In 1QFY23
Foreign Direct Investment declined by 47% in the first quarter of FY 2018-19. This led to a decrease in the foreign portfolio investment in India leading to some degree of negative sentiment.
IntroductionIn the first quarter of the fiscal year, Foreign Direct Investment (FDI) into India saw a percent decline. This was largely due to the COVID-19 pandemic and the ensuing global economic slowdown. FDI is an important source of capital for India. It helps to finance our trade deficit and supports economic growth. In recent years, FDI has been one of the fastest-growing sources of capital for India. However, the COVID-19 pandemic has led to a significant slowdown in global economic activity. This has resulted in a decline in FDI flows into India. The government has taken several measures to attract FDI into India. These include easing restrictions on foreign investment, providing tax incentives, and simplifying procedures for setting up businesses in India. Despite these measures, FDI flows into India are likely to remain subdued in the near future as the global economy continues to recover from the pandemic.
BackgroundThe data for Foreign Direct Investment (FDI) flows in India are released by the Reserve Bank of India (RBI) on a quarterly basis. The latest data for FDI inflows into India are for the quarter that ended in June 2017. According to this data, FDI inflows into India declined by 18% in QFY2017 to $22.4 billion, compared to $27.3 billion in QFY2016. This is the first time since Q2FY2009 that FDI inflows have declined on a year-on-year basis. There are several reasons behind this decline in FDI inflows into India. Firstly, global FDI flows have been declining since 2015 due to slower economic growth and increased uncertainty in the world economy. Secondly, there has been a slowdown in the Indian economy, with GDP growth falling from 7.6% in FY2016 to 6.7% in FY2017. This has made India less attractive as an investment destination compared to other countries. Thirdly, the government’s decision to demonetize high-value currency notes in November 2016 led to a slowdown in economic activity and caused disruptions, particularly for small and medium enterprises (SMEs). This also made India less attractive as an investment destination. Fourthly, the implementation of the Goods and Services Tax (GST) in July 2017 has led to some uncertainty and confusion among businesses, which has further dampened investor sentiment.
In spite of these challenges,
47% decrease in Foreign Direct InvestmentDespite a strong economy, foreign direct investment (FDI) in the United States decreased by percent in the fourth quarter of the fiscal year 2018. In contrast, FDI increased in most other major economies. The drop in FDI was driven by several factors, including:
- Increased tariffs and other trade barriers.
- The Trump administration’s “America First” policies
- Political uncertainty surrounding the U.S. government shutdown