FDI inflows contract in FY19, first in 6 yrs, on weak economic conditions

Singapore replaces Mauritius as the top source of FDI

Inbound foreign direct equity investments declined for the first time in six years in FY19, in line with the overall weak economic conditions.

Latest figures released by the Department for Promotion of Industry and Internal Trade (DPIIT) on Tuesday showed that equity inflows reduced to $44.36 billion, down by 1 per cent from $44.85 billion last year.

“Apart from a wait-and-watch policy adopted by global investors before the elections, volatility in the stock market and the overall weak health of the corporate sector may have scared off new inflows,” said Devendra Pant, chief economist at India Ratings.

India’s economy is officially projected to grow 7 per cent in FY19 —lowest in the Modi government’s first tenure. Private investments remained subdued and demand, particularly in the rural sector, was muted.

However, investors may now rally around the massive mandate given to PM Modi and investments may rise accordingly, he added.

In FY19, Singapore turned out to be the largest source of offshore funds with FDI rising nearly 25 per cent to $16.22 billion. This was followed by Mauritius at $6.8 billion and Japan at $2.98 billion. India revised its tax treaty with Mauritius and Singapore, which has fully come into effect from the current financial year.

Figures presented by the government in Parliament in 2018 showed that FDI from nations widely regarded as tax havens, such as Cayman Islands and Hong Kong, had jumped in FY18.

In the first financial year (2014-15) of the Modi government, FDI surged 25 per cent. The growth rate has fallen to 3 per cent FY18, according to latest statistics.

In 2018, India’s position as an attractive FDI destination fell for the first time.