Summary of FDI Trends and Challenges in India (FY24)

Summary of FDI Trends and Challenges in India (FY24)

Sub: Economy

Sec: External Sector

• Net FDI Inflows:
  • Net FDI inflows on capital account fell to $10.6 billion in FY 24 from $ 28 bn in FY 23, a 62% decline from the previous fiscal year, marking the lowest level since 2007.
  • If net repatriation of income by foreign companies ($53 billion) is included, the retained amount by foreign companies is very minimal.
• Gross FDI Inflows and Repatriation:
  • Gross FDI inflows were $70.9 billion in FY24.
  • Foreign companies repatriated or disinvested $44.4 billion (63% of gross FDI).
• Outbound Investments:
  • Indian companies made outbound investments worth $16 billion.
• Growth in Profits and Dividend Payouts:
  • FDI companies experienced a 45.2% growth in net profit to $32.4 billion in FY24.
  • Similar growth was observed in dividend payouts in 2023.
• Repatriation Trends:
  • FDI repatriation (capital account) increased from $9.8 billion in FY14 to $44 billion in FY24.
  • Net repatriation of incomes by MNCs from India is rising faster, with an estimated $53 billion in FY24.
  • Overall, MNCs repatriated $97 billion (capital and net income) in FY24, $27 billion higher than gross FDI flows.
• Decline in Net FDI and FPI Flows:
  • Net FDI at $10.6 billion in FY24 is a 13-year low and 59% lower than the FY21 peak of $44 billion.
  • Foreign Portfolio Investment (FPI) flows have been negative or flat in five of the last eight years, with $35 billion in FY24.

Reasons for Decline in FDI

• Global Trade Protectionism:
  • Rising protectionism since the Global Financial Crisis (2008) and intensification during the US-China trade war (2018) have led to a decline in global FDI flows.
  • FDI inflows as a percentage of global GDP fell to 1.3% in 2023, the lowest since 1996.
• Impact of Trade Conflicts:
  • Renewed US-China trade conflicts and increased tariffs on Chinese imports have exacerbated the situation.
  • Global trade liberalization phases saw higher growth in India’s trade, but recent protectionism has decelerated trade growth significantly.
• Sectoral Concentration of FDI:
  • FDI inflows in India are concentrated in a few sectors such as IT, trading, and non-conventional energy.
  • The concentration of the top nine sectors in FDI inflows rose from 49% in FY17 to 70% in FY24.
  • Manufacturing sector’s share in FDI inflows has declined to 30%.

Future Outlook and Recommendations

• Opportunistic Foreign Capital Flows:
  • Foreign capital flows are increasingly becoming opportunistic due to recurring global trade conflicts.
• Reviving Domestic Economy:
  • India needs to revive domestic savings and demand to stimulate private capital expenditure, employment, export competitiveness, and overall productivity.
• Selective Gains from China+1 Theme:
  • Only a few sectors like electric equipment, general machinery, auto parts, semiconductors, and apparel can sustain gains from the China+1 strategy.

This above-mentioned analysis highlights the challenges India faces in attracting and retaining foreign direct investment amidst global trade shifts and protectionism.

The emphasis on the need for domestic economic revival and strategic focus on specific sectors aligns with the broader goal of achieving sustainable economic growth.

Components of FDI Inflows into India (FY23 vs FY24)

• Net FDI (b – c):
  • FY23: $28 billion
  • FY24: $10.6 billion
• FDI to India (b1 – b2):
  • FY23: $42 billion
  • FY24: $26.5 billion
  • Gross FDI inflows (b1):
    • FY23: $71.4 billion
  • Repatriation/disinvestment (b2):
    • FY23: $29.3 billion
    • FY24: $44.4 billion
  • FDI by India (c1 – c2):
    • FY23: $14 billion
    • FY24: $16 billion
    • Gross FDI outflows (c1):
      • FY23: $17.9 billion
      • FY24: $19.6 billion
    • Repatriation/disinvestment (c2):
      • FY23: $3.9 billion
      • FY24: $3.6 billion