India remains attractive for FDI investors

Foreign direct investment (FDI) has been rising annually in contrast with the heavy selling by foreign portfolio investors (FPIs) in recent times. Gross FDI inflows were at $83.6 billion in FY22, surpassing $82 billion a year earlier. It stood at $74.4 billion in FY20. Services and manufacturing sectors accounted for a major share of FDI in FY22, RBI said in its monthly bulletin. However, net FDI moderated to $39.3 billion in FY22 from $44 billion a year ago, due to higher outward investment by Indian entrepreneurs and repatriation by foreign investors, RBI said.

India’s cumulative FDI stands at around $570 billion.

“FDI investments normally look at the long-term potential of a country and are rarely withdrawn. The high flow of FDI indicates that India is a bright destination for foreign investment,” said

chief economist Madan Sabnavis. “The potential is in several sectors such as IT, finance, FMCG, auto, drugs, telecom etc. These investments are typically made by companies which seek JVs or take up stakes in domestic companies. They could be VC funds that support startups here.”

Given the long-term view, FDI investors are not present in the trading segment.

Over two-fifth of the 1,200 global business leaders surveyed in the US, UK, Japan and Singapore plan to make additional or first-time investments in India, consulting firm Deloitte had said in a report last year.

FPIs have been withdrawing ever since the US Federal Reserve began the process of winding up purchases of treasury bonds and mortgage-backed securities it had been making to support the economy during the pandemic. Inflation sparked by the surge in commodity prices amid the Russia-Ukraine conflict have led to the further tightening of monetary conditions through policy rate hikes, hastening the withdrawal of investments by portfolio investors. FPIs have pulled out a net $21.3 billion in 2022 so far.

India’s foreign exchange reserves fell to $596 billion at the end May 6 from a record of $642.453 billion on September 3 last year as the Reserve Bank of India (RBI) sold dollars from reserves to arrest the speed of the rupee’s depreciation and quell foreign exchange volatility.