Experts have attributed the contraction in inflows to global and domestic economic problems and suggested the government to push big-ticket reforms to restore the confidence of global investors.
"Decisions like allowing FDI in multi-brand retail and permitting foreign airlines to buy stake in domestic carriers would help in attracting more and more FDI," Ficci Secretary General Rajiv Kumar said.
The decline in FDI comes at a time when India's economic growth slipped to nine-year low of 6.5 per cent in 2011-12. The growth in the January-March quarter was merely 5.3 per cent.
Recently, Standard and Poor's and Fitch had lowered India's credit outlook to negative from stable citing reasons such as high inflation and inadequate reforms.
During April-May 2012 too, FDI in India declined by 59 per cent year-on-year to USD 3.18 billion, a senior official in the Department of Industrial Policy and Promotion (DIPP) told PTI.
Foreign inflows in April dipped to USD 1.85 billion from USD 3.12 billion in April 2011.
Contraction in FDI will keep the balance of payments under pressure and could also impact the rupee. If the prices of commodity and oil increases globally, a weaker domestic currency will add to inflationary pressures. MORE