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India's FDI hit by geopolitical disturbances
The trends in the FDI growth rate indicated preference for long-term investments in the Indian economy
Representative image / Unsplash
India’s Foreign Direct Investment (FDI) witnessed a decline in April 2023- January 2024 compared to the same period in the previous year.
According to the Department of Economic Affairs (DEA), Ministry of Finance, during these ten months, gross FDI inflows were US$ 59.5 billion compared to USD 61.7 billion in the same period last year.
The Reserve Bank of India (RBI) recently released its findings on FDI trends during the third quarter of the fiscal year 2023-24. While the inflow compared to the same quarter last year was high, the overall FDI inflow from April-December saw a decline.
Notably, India received approximately $10 billion in FDI – the lowest figure for the first half of a financial year since the 2008 global recession, according to RBI.
The reason for the decline appears to be the “economic uncertainty and higher interest rates.” The finance ministry opined that the decline was a result of geopolitical disturbances.
The global FDI landscape in 2023 was led by capital-intensive projects, with a focus on renewable energy, batteries, and metals sectors.
Due to the disturbances, the cost of financing projects in 2023 increased. The DEA stated that high cost of financing impacted FDI in other developing countries as well, as they faced a decline of 9 percent in 2023.
However, the ministry mentioned that globally FDI is expected to pick up pace in 2024. “Decline in inflation and borrowing costs in major markets may stabilise financing conditions for international investment deals. However, there are significant risks, including geopolitical risks, high debt levels accumulated in many countries, and concerns about further global economic fracturing,” it maintained.
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