There has been considerable optimism about foreign direct investment (FDI) flows turning into a deluge in India in the last few years, especially after the coronavirus pandemic in 2019 when foreign companies embarked on a China+1 strategy to diversify their sourcing destinations and the Indian government went on an incentive drive to build the country as a manufacturing hub.
After all, India has seen a significant increase in FDI inflows since the NDA government came to power 10 years back, from an average of $30 billion to $35 billion in 2013-14 to a peak of $85 billion in 2021-22.
However, while the government had set a target of attracting close to $100 billion in inflows over the next five years, currently FDI is on a losing streak.
Net FDI flows in India dropped sharply by 45.5% in the 11 months of FY24 (April ‘23 to February ‘24) to $14.55 billion, when compared to $26.71 billion in the same period a year ago. Gross FDI flows in the April-February period of 2023-24 fell by 2.7% to $65 billion.
The FY24 fall came on the back of a sharp 16% drop in gross FDI inflows to $71 billion in 2022-23. This was the first time in as many as nine years that a decline took place in India’s gross FDI flows.
The FDI drop is driven by repatriation/disinvestment, which rose to $38.30 billion in the 11 months of FY24 from $27.17 billion in April ‘22 – February ‘23, according to the most recent data released by India’s apex bank, the Reserve Bank of India (RBI).
THE FDI TRAJECTORY
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