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Global uncertainty casts shadow on India's FDI inflows in FY24: Experts

Country's strength to attract global investments remains intact, they say

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However, the country’s strength to attract global investments in the medium remains intact due to reforms and economic growth

Abhijit Lele Mumbai

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Foreign direct investment (FDI) in India moderated in Financial Year 2022-23 (FY23) and will likely stay under pressure in FY24, said economists and analysts, citing global uncertainty and tight liquidity.

The weak economic sentiment and dip in start-ups' valuation will mean low FDI flows from financial sector players like private equity (PE) funds and venture capital in near term, they said, adding the India’s growth story remains intact.

However, the country’s strength to attract global investments in the medium remains intact due to reforms and economic growth, they said.

Gross inward FDI flows declined 16.3 per cent year-on-year to $71.0 billion in 2022-23, according to data from the Reserve Bank of India (RBI). Net FDI fell too: to $28.0 billion in 2022-23 from $38.6 billion a year ago, mainly due to moderation in gross inflows and increased repatriation.

Dharmakirti Joshi, chief economist at CRISIL, said the decline in FDI is not surprising and is part of investments slowing down globally. Investment flows will remain under pressure in FY24 due to uncertainties in the economic and business environment.

The Russia-Ukraine war, valuation concerns about start-ups, and modest flows from fintechs have affected FDI. The trend is likely to continue in FY24, said Aditi Nayar, chief economist at ICRA.

Madan Sabanavis, chief economist at Bank of Baroda, said the valuation of start-ups took a beating in FY23 and it would be a challenge again.

Economists and analysts agreed that FDI moderation is not a long-term trend. "India is structurally well placed to attract investment in the medium term. The story remains intact," said Joshi of CRISIL.

Naveen Aggarwal, partner, tax at KPMG India, said while the recent global economic slowdown might have led to muted investor response, India continues to remain at a global vantage point in terms of capital inflows. The implementation of GST, proactive government clarifications and minimal rate tweaks in the last couple of months are quite positive.

The inclusion of excluded sectors like electricity, oil and gas will improve overall FDI flows and growth in India, said Aggarwal. 

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First Published: May 25 2023 | 8:07 PM IST

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