Foreign investment in India is declining even though the economy is booming

Foreign direct investment Investment in India has slumped over the past year, despite investors' optimism about the world's fastest-growing major economy.
HSBC Holdings Plc calculates that net foreign investment fell to $13 billion in the year to September, compared with $38 billion in the same period last year. In India's fiscal year 2021, which ends in March, the figure hit a recent high of $44 billion.
The decline comes despite a wave of planned investments announced by foreign companies and investment funds. These include projects from semiconductor factories run by American companies to multi-billion-dollar renewable energy projects that are attracting interest from Gulf states.
The FDI figures are in line with the trend in the official balance of payments data from the Reserve Bank of India. The latest statement showed that net foreign direct investment inflows fell to $4.8 billion in the first half of the fiscal year (April-September last year), compared to $19.6 billion in the same period last year.
The collapse in foreign direct investment is puzzling given the rapid economic growth and growing share of global trade, HSBC said. The government expects gross domestic product to grow 7.3% in the fiscal year ending in March, matching last year's pace.
Explaining the decline in foreign direct investment last year, HSBC said it reflected a change in investor appetite rather than a loss of interest in it Indian economy. One factor is declining investment in Indian technology start-ups, reflecting a global trend, the bank's economists said in a report on Thursday.
Another factor: declining investment in so-called physical sectors, which include automotive, pharmaceuticals and construction. But many investors have recently signaled commitments to invest in emerging sectors such as artificial intelligence, data centers and electric vehicles, the bank said, a sign that investor appetite is shifting to new areas.
“Because these sectors are new, they may take longer than normal to materialize,” HSBC economists wrote. “And if that is the case, there will likely be a new wave of foreign direct investment.”
At an event on Thursday, Reserve Bank of India Governor Shaktikanta Das acknowledged the recent decline in foreign direct investment in India, but said the decline was due to a global decline.
“I think these are the points that are being overlooked,” Das said.