According to the latest data released by the Department for the Promotion of Industry and Internal Trade (DIPP), India’s inward foreign direct investment (FDI) declined for the first time in the last six years. India received FDI worth nearly $44.4 billion in 2018-19, a small dip of about 1% from the previous year. The services sector, including the financial, banking and insurance and outsourcing businesses, remained the largest beneficiary with inflows up by 37.3 %. But FDI tumbled in the telecom and pharmaceutical industries by 56% and 74% respectively. Further, Singapore has replaced Mauritius as the top source of FDI. This is good news. The taxation regime has long meant that foreign inflows from Mauritius have largely been indirect, with the country serving only as a transit point.
Although the domestic investment cycle has been disappointing, the FDI figures suggest that the economy retains its basic attractiveness. Stable macroeconomic indicators have helped. A low-inflation regime, thanks to an explicit mandate given to the Reserve Bank of India, appears to have gained a measure of credibility as well, allowing for longer-range rupee calculations.
Foreign direct inflows over the past fiscal year might have been hurt by the policy uncertainty brought on by the just-ended general elections, but this only means that the figure is likely to rise from here on, now that a stable government is in place. Still, it is about time the country raised its sights to a larger FDI target. Even an annual goal of $100 billion no longer seems out of reach. For this, however, structural reforms may be necessary. So far, the “Make in India" initiative, which was supposed to provide a fillip to the manufacturing sector on the back of foreign capital and technology, has shown only dismal results. If India wants to become an export powerhouse for the rest of the world, several policy changes need to be made. Work towards that end must begin rightaway.