FDI inflows in the services sector declined by about 23 per cent to USD 6.7 billion in 2017-18, according to the Department of Industrial Policy and Promotion (DIPP).
The sector had attracted FDI worth USD 8.68 billion in 2016-17. The services sector includes finance, banking, insurance, outsourcing, R&D, courier, tech testing and analysis.
As far as overall FDI inflows are concerned, the growth rate recorded a five-year low of 3 per cent at USD 44.85 billion in 2017-18.
According to Anis Chakravarty, Lead Economist and Partner, Deloitte India, the slowdown in FDI could be because of re-routing of investments to economies like the US which witnessed an increase in interest rates together with a stronger dollar.
"Expectations of further rate hikes by Fed, along with the tariff issues, this year can be expected to result in a further slowdown in foreign inflows.
"The declining growth rate of FDI is more of an exogenous effect and the policy makers will have to continue to focus on macro-economic management," Chakravarty said.
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FDI in chemicals sector too registered a marginal decline in growth rate in 2017-18, when it attracted USD 1.30 billion investments as compared to USD 1.39 billion in 2016-17.
Services sector contributes over 60 per cent to India's GDP.
Foreign Direct Investments (FDIs) are important for India as it would require huge investments in the coming years to overhaul the infrastructure sector to boost growth.
Decline in foreign inflows could put pressure on the country's balance of payments and may also impact the value of the rupee.