Net FDI In India Plummets By 62% In FY24 To 17-Year Low Amid Global Economic Shifts, Says RBI Bulletin

India has experienced a significant drop in net foreign direct investment (FDI), with figures for the financial year ending March 31, 2024 (FY24) showing a steep decline of 62.17% to $10.58 billion from the previous year's $27.98 billion. This marks the lowest level of net FDI in the country since 2007, highlighting increased repatriation of capital by foreign investors.

Despite gross inward FDI remaining relatively stable at $71.0 billion in FY24, compared to $71.4 billion in FY23, the sharp reduction in net FDI was driven by a considerable increase in outflows. The Reserve Bank of India's (RBI) provisional data for FY24 indicated FDI inflows of $26.55 billion and outflows of $15.96 billion. This compares starkly to FY23, where inflows were significantly higher at $42.0 billion, and outflows stood at $14.02 billion.

A crucial factor in this downturn has been the surge in repatriation and disinvestment by foreign investors, which soared to $44.40 billion in FY24 from $29.34 billion in the previous fiscal year. This increase shows a trend where foreign investors are pulling back their investments, possibly driven by a myriad of global economic challenges.

The "State of Economy" report in the RBI's May 2024 bulletin shows that over 60% of FDI equity flows were funnelled into manufacturing, electricity and other energy sectors, computer services, financial services, and retail and wholesale trade.

Country-wise, Singapore, Mauritius, the US, the Netherlands, Japan, and the UAE were the primary sources, contributing to more than 80% of the FDI flows into India. However, the high repatriation rates overshadowed the inflows from these countries, leading to a significant net decline.

The drop in India's net FDI can be partly attributed to broader global economic conditions. Higher borrowing costs, increased geo-fragmentation, and rising protectionism have collectively dampened global FDI flows. These factors have made investors more cautious and selective about where they place their capital.

According to fDi Intelligence, a publication by FT Ltd that monitors global investment trends, global FDI has been undergoing a structural shift since the COVID-19 pandemic. There has been a noticeable move of FDI flows from developed to developing economies, with the share of global FDI capital expenditure from G20 emerging markets rising to 14.9% in 2023, up from 8.2% in 2003.

Despite the sharp decline in net FDI, India remains one of the top 10 economies projected to witness high FDI momentum in 2024. This optimism is supported by India's economic fundamentals and proactive policy measures aimed at improving the investment climate.

The RBI's report also noted that Indian companies have been increasingly active on the global stage, announcing over 550 greenfield FDI projects abroad in FY24, the highest in any previous year. This outward investment indicates the global aspirations of Indian enterprises and their growing footprint in international markets.

India's long-term prospects for attracting foreign investment remain robust. The government's continued efforts to streamline regulations, improve infrastructure, and foster a business-friendly environment are expected to pay dividends.

Moreover, the structural changes in global investment patterns could eventually benefit India. As developed economies grapple with economic uncertainties, developing countries like India could emerge as more attractive destinations for investors seeking higher returns.