FDI: India remains attractive for FDI investors

Foreign direct investment (FDI) has been rising annually, in contrast to the strong selling by foreign portfolio investors (FPIs) of late. Gross inflows of foreign direct investment were US$83.6 billion in FY22, exceeding US$82 billion a year earlier. In fiscal 2020, it was $74.4 billion. The service sector and manufacturing accounted for a large portion of foreign direct investment in FY22, RBI said in its monthly bulletin. However, net FDI fell to $39.3 billion in FY22 from $44 billion a year ago, driven by higher overseas investment by Indian entrepreneurs and the repatriation of foreign investors, RBI said.

India’s cumulative foreign direct investment is around US$570 billion.

“FDI investments typically look at a country’s long-term potential and are rarely withdrawn. The high inflow of FDI shows that India is a prime destination for foreign investment,” he said

Chief Economist Madan Sabnavis. “The potential lies in multiple sectors such as IT, finance, FMCG, auto, pharmaceuticals, telecom, etc. These investments are typically made by companies looking for JVs or taking stakes in domestic companies. It could be VC funds that support startups here.”

Given the long-term perspective, FDI investors are not present in the trading segment.

More than two-fifths of the 1,200 global business leaders surveyed in the US, UK, Japan and Singapore are planning additional or first-time investments in India, consulting firm Deloitte said in a report last year.

FPIs have been retreating since the Federal Reserve began unwinding purchases of Treasuries and mortgage-backed securities it had been making to support the economy during the pandemic. Inflation, triggered by the rise in commodity prices amid the Russia-Ukraine conflict, has further tightened monetary conditions through interest rate hikes and accelerated portfolio investors’ divestment. FPIs have net withdrawn $21.3 billion so far in 2022.

India’s foreign exchange reserves fell from a record $642.453 billion on September 3 last year to $596 billion on May 6 as the Reserve Bank of India (RBI) sold dollars from reserves to slow the pace of the rupee’s depreciation to halt and suppress FX volatility .

Cheryl Tenny

"Thinker. Food advocate. Incurable coffee enthusiast. Communicator. Proud student. Zombie buff. Tv fanatic. Extreme troublemaker."

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