Net foreign direct investment (FDI) flows into India, which declined 25.6% in 2022-23 to $28.7 billion, are likely to remain sedate this year as well and may only rebound from 2024-25 onwards, Nomura said on Wednesday.
The decline in FDI flows last year, from $38.6bn in 2021-22 and $43.5bn in the year before that, was more likely due to global push factors such as tighter monetary policies in developed markets, while domestic pull factors like supply chain relocations were yet to materially lift investment flows, the Japanese financial firm said.
“This marks a fall [in FDI] to 0.8% of GDP vs around 1.5% in the past three years,” Nomura economists Sonal Varma and Aurodeep Nandi wrote in a research note. “Even though outward FDI dropped by $4 billion, net inflows suffered as the fall in inward FDI was steeper,” they added.
Although sectoral flows for the full year are yet to be released, Nomura reckoned the fall in inflows was led by the services sector, with the largest component — IT-related FDI likely slowing due to lower investments in start-ups while inflows in autos, construction and broader services fell too. As per data available till December 2022, trading, pharma, energy and chemicals sectors saw a rise in investments.
“We expect 2023-24 to also be a challenging year due to global uncertainty, with a turnaround in FDI inflows more likely from 2024-25, in our view,” the Nomura economists concluded.
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