Global woes pull net foreign direct investment down 77% in H1, shows data

Net foreign direct investment (FDI) in India, inflows minus outflows, declined sharply in April-September 2023 to $4.5 billion from $19.6 billion in the same period last year, due to a moderation in global investment activities and a rise in repatriation.

The moderation in flows was majorly witnessed in communication services, retail and wholesale trade, and manufacturing sectors. Singapore, Mauritius, Japan, the US, and the Netherlands were the major source countries, contributing more than two-thirds of the FDI equity flows.

Repatriation/disinvestment by those who made direct investments in India rose to $23.06 billion in the first six months of FY24 from $14.01 billion in April-September 2022, the Reserve Bank of India (RBI) data showed.

The overseas direct investment by Indian entities was almost flat at $5.52 billion in the first six months of FY24 as against $5.75 billion in the same period last year (FY23).

According to the 'State of Economy' article in the RBI’s monthly bulletin (November 2023), more than half of the FDI equity flows were directed towards manufacturing, financial services, transport, and computer services. Artificial intelligence (AI) has emerged as a major area of interest for FDI investors. Of the 778 projects (total worth of $26.8 billion) related to R&D of AI applications announced globally since 2016, India received the maximum share (26.2 per cent), followed by Canada, Singapore, Israel, and the US.

The RBI, in its Monetary Policy Report (October 2023), had said that looking ahead, the 'higher for longer' interest rate scenario in the US and other advanced economies could keep risk aversion towards assets in emerging market economies elevated and impinge upon capital flows.

Global deals involving mergers and acquisitions are languishing at a 10-year low due to high interest rates weakening activities in equity markets. This has adverse implications for the global foreign direct investment (FDI) cycle, already in a slump.