Impact of global recession on FDI in the country: Expectation of stimulus measures in the budget

- Renewable energy and power auto industry are emerging sectors to attract foreign investment

In October, 2023, net foreign direct investment (FDI) in the country rose to 5.90 billion dollars, a 21-month high. In October 2022, the figure of net FDI was 1.16 billion dollars. Strong gross inflows and low levels of investment withdrawals have seen an increase in FDI in October of the current financial year. But if we talk about the current financial year, there has been a fifty percent decline in FDI. Net FDI was $10.43 billion in the period from April to October, compared to $20.76 billion in this period of the previous financial year, according to Reserve Bank data. Global economic slowdown and declining trade activity have affected inbound and outbound FDI flows. Investment opportunities remain low due to recession in developed markets.

The number of withdrawn investments from investments made in India decreased to 1.10 billion dollars in October. According to Reserve Bank statistics, which was seen at 2.93 billion dollars in October 2022. The highest flow of FDI in India has been seen from Mauritius, Singapore, Cyprus and Japan. More than 80 percent of the total FDI in October came from these countries. Sectors receiving FDI equity flows in the country mainly include manufacturing, retail and wholesale trade, power and other energy and financial services sectors. It can also be said from the information received that India is becoming the destination of choice for FDI at the global level.

Today, the world is looking for an alternative to China and foreign investors are also looking towards India. In the next budget, industries, especially renewable energy and auto sector, are expecting measures to increase the attraction of foreign investment.

Decline in FDI can prove counterproductive for the country on several fronts. It is necessary to increase the FDI inflows for the development of the country's infrastructure sector and to increase the capital account balance. Apart from the global economic slowdown, the changing foreign trade policy of the government is partly responsible for the decline in FDI in the current financial year.

Following the border dispute with China, the Indian government's move to tighten trade norms with China is seen to have hit investment from China. With its trade disrupted, China is playing games with its Asian neighbors Maldives, Sri Lanka, Malaysia, Nepal, Pakistan to increase trade and diplomatic relations and plans to divert its FDI flow towards these countries. On the other hand, despite the encouraging measures being taken by the Government of India, the sharp decline in FDI flows in the country in the current year is becoming a matter of concern for the government. Even if we exclude the effect of Corona, there are many reasons for the low number of FDI in the country, one of the reasons being the ever-changing foreign trade policy of the government. Even in the recent past, the move to tighten the policy for e-commerce was strongly opposed. Keeping this opposition in mind, the e-commerce policy had to try to address the concerns of foreign e-commerce players. Ever since the country's economy was opened up in the 1990s, many foreign companies have invested billions of dollars in FDI in India.

When the current government came to power in 2014, foreign investors had significantly increased investment inflows into the country compared to the previous government's tenure, with high expectations from the new government. Considering the fact that the current government has undertaken economic reforms to attract foreign investors, it remains the responsibility of the government to ensure that the decline in FDI does not continue in the future. India may have achieved a leading position in ease of doing business but till the increase in FDI in all forms in the country is not sustained, certificates like ease of doing business remain useless. Only time will tell how much India can benefit from the changed world trade relations after Corona. Since our country is still under debt burden, it is necessary to keep increasing FDI.

The sectors that receive the most FDI include services, computer software and hardware, telecommunications, automobiles. Talking about the automobile sector, today the whole world is in the process of making a revolution in the automobile and energy sector. In the automobile sector, the world is turning towards the production of electric powered vehicles instead of conventional petrol-diesel powered vehicles. While India remains a big market for the automobile industry, it is also evident from the reports that India does not want to miss the opportunity to attract FDI in this sector. As the energy sector is also shifting from traditional power generation sources to renewable energy, the world is now shifting towards renewable energy, while the world's major companies are keen to invest in renewable energy projects in India.