Foreign direct investment in the country's service sector declined by 23% to $2.98 billion (Rs 13,652 crore) during April-January 2010-11 over the same period a year ago, according to industry ministry's latest data.
The financial and non-financial services sector had attracted FDI worth $3.87 billion (Rs 18,588 crore) during April-January 2009-10.
According to experts, the global economic recovery is not strong, which is impacting foreign investments in India.
"FDI is showing weakness now. Global economic recovery is still fragile specially in European economies," an economist said.
On the other hand, overall FDI inflows too dropped by 25% to $17 billion during the 10 months of 2010-11, against $23 billion in the year ago period.
The services sector, despite the 23 per cent dip in FDI, topped the chart in attracting maximum investment.
Telecommunications segment, including radio paging and cellular mobile, was the second best sector that attracted $1.33 billion, followed by automobile sector($1.19 billion), housing and real estate ($1.04 billion), power ($1.03 billion), construction ($1 billion) metallurgical industries ($1 billion) during the period, the data said.
During the period, the highest FDI of $6.12 billion came from Mauritius followed by Singapore ($1.5 billion), the US ($1.09 billion), Japan ($1.36 billion) and the Netherlands ($1.04 billion).
The government is making sustained efforts, including involving stakeholders in policy formation, to make the investment regime more attractive and investor friendly.
Last week to boost FDI inflows, the government provided greater flexibility to Indian firms to raise overseas capital and scrapped norms that required a foreign company to obtain its domestic JV partner's approval for making investments in the same field outside the joint venture.