FDI inflows will “rebound” in the coming months: MF – economic news

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Despite a decline in the first half of the current fiscal, FDI inflows to India are expected to resume in the coming months due to strong macroeconomic fundamentals, a favorable business environment and rising growth, the finance ministry said in its Mid-Year Economic Review 2023-24. report on friday.

“Proof of this effect is the sharp increase in foreign direct investment in October 2023,” the ministry said. Foreign direct investment inflows hit a 21-month high of $5.9 billion during the month.

The decline in total FDI flows in H1 FY24 compared to H1 FY23 is not due to a moderation in equity FDI inflows; rather, it is due to an increase in repatriation/divestment, the Treasury noted.

A similar trend is evident in other emerging market economies, such as China. “This is likely due to the increase in interest rates in advanced economies, the tightening of monetary policy and the general uncertainties prevailing in these economies due to geopolitical conflicts,” the report said.

Gross FDI inflows to India were down 15.9% year-on-year in 1H FY24. The inflow of foreign direct investment equity capital was significantly lower by 23.4% during the period.

Balance of payments data for 2QFY24 showed net outflows of foreign direct investment ($0.3 billion) against inflows of $5 billion in 1Q24 and $6.2 billion in 2Q23.

Net FPI inflows in Q2FY24 at $4.95 billion were also much lower than $15.73 billion in Q1FY24 and $6.5 billion in Q2FY23.

In the first half of the year, the easing of foreign direct investment flows was mainly recorded in communication services, retail and wholesale trade, and in the manufacturing industry, the Ministry of Finance said.

Singapore, Mauritius, Japan, the US and the Netherlands were the main source countries, contributing more than two-thirds of FDI equity flows.



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