Foreign direct investment (FDI) in the country's services sector declined by 19.5% to $2.85 billion (Rs 13,044 crore) during April-December this fiscal, according to the industry ministry data.
The services sector (financial and non-financial services) had attracted FDI worth $3.54 billion (Rs 17,074 crore) during April-December 2009-10.
According to economists, foreign investors are cautious as the global economic recovery is fragile and uneven, specially in Europe.
"Global economic situation is still down, which is impacting FDI inflows. Besides, internal problems like procedural delays are also affecting FDIs," Crisil's Principal Economist D K Joshi said.
However, he said that India still remains a preferred destination for foreign investment and that is evident from the strong foreign institutional investors (FII) inflows.
FIIs invested about $25 billion during the first three quarters of 2010-11.
The services sector, despite the 19.5% dip in FDI, topped the chart in attracting investment.
Telecommunications segment, including radio paging and cellular mobile, was the second best sector attracting $1.32 billion, followed by automobile ($1.06 billion), power and real estate ($1.02 billion), metallurgical industries ($976 million) during the period.
During the period under review, the highest FDI of $5.74 billion came from Mauritius followed by Singapore ($1.44 billion), Japan ($1.19 billion), the US ($1.05 billion) and the Netherlands ($1.01 billion).
Overall FDI inflows dropped by 23% to $16 billion during April-December 2010-11, against $20.86 billion in the year ago period.
In view of declining foreign investment inflows, the Reserve Bank of India (RBI) is considering setting-up a panel to find out the reasons for FDI slowdown and suggest ways to encourage it.
The government is making sustained efforts, including involving stakeholders in policy formation, to make the investment regime more attractive and investor friendly.
The government is considering to liberalise FDI regime in sectors like defence and multi-brand retail.
"Discussions are underway to further liberalise the FDI policy," Finance Minister Pranab Mukherjee had said during his presentation of the Budget 2011-12.
