India's FDI equity inflow at five-year low of $44 billion in FY24

High interest rates in advanced economies, limited absorptive capacity locally likely reasons

Foreign direct equity investments fell to a five-year low in the financial year ended March 31, 2024 (FY24) to $44.42 billion due to external factors such as high interest rates in advanced economies, and a limited absorptive capacity in various sectors in India.

Inflows contracted 3.5 per cent year-on-year (Y-o-Y) in FY24, data released by the Department for Promotion of Industry and Internal Trade (DPIIT) showed.

Foreign investment, including FDI equity inflows, is needed to supplement domestic resources and finance the current account deficit. FDI inflows are a good indicator of a nation’s appeal as a long-term investment destination.

“The fall in FDI equity inflows can be attributed to two reasons – globally, investible funds have fallen and interest rates have hardened. Several sectors, including IT (information technology) and startups are seeing saturation of investment,” said Madan Sabnavis, chief economist, Bank of Baroda.

 

Total FDI, which includes equity capital of unincorporated bodies, reinvested earnings, and other capital, contracted 1 per cent Y-o-Y to $70.95 billion during FY24. Last year, the total FDI inflows stood at $71.35 billion.

Singapore continued to be the top investor with $11.77 billion FDI during FY24. It was followed by  Mauritius ($7.97 billion), the United States ($4.99 billion), Netherlands ($4.92 billion), Japan ($3.18 billion), the United Kingdom ($1.21 billion), the United Arab Emirates ($2.92 billion), Cyprus ($806 million), Germany ($505 million), and Cayman Islands ($342 million).

Computer software and hardware was the highest recipient of FDI at $7.97 billion, down 15.1 per cent Y-o-Y. It was followed by the services sector at $6.64 billion, down 24 per cent. Services includes financials, banking, insurance, research & development, courier, among other sectors. Trading came next garnering $3.86 billion, contracting by almost a fifth,  while investment inflows in the automobile industry stood at $1.52 billion in FY24 compared to $1.9 billion in FY23.

Maharashtra continued to be the most favoured destination of investors, receiving $15.11 billion worth of investments, although inflows declined 2 per cent.

This was followed by Karnataka with $6.57 billion in FY23 from $10.42 billion a year ago. In the case of Delhi, FDI inflows declined to $6.52 billion from $7.53 billion a year ago.