FDI inflows witness sharp dip in May

Foreign direct investment (FDI) in India declined sharply for the second month in a row in May with inflows slipping to USD 1.32 billion from USD 4.66 billion in the year-ago period, reflecting the impact of slowing global economy.

Experts have attributed the contraction in inflows to global and domestic economic problems and suggested the government to push big-ticket reforms to restore the confidence of global investors.

"Decisions like allowing FDI in multi-brand retail and permitting foreign airlines to buy stake in domestic carriers would help in attracting more and more FDI," Ficci Secretary General Rajiv Kumar said.

The decline in FDI comes at a time when India's economic growth slipped to nine-year low of 6.5 per cent in 2011-12. The growth in the January-March quarter was merely 5.3 per cent.
Recently, Standard and Poor's and Fitch had lowered India's credit outlook to negative from stable citing reasons such as high inflation and inadequate reforms.

During April-May 2012 too, FDI in India declined by 59 per cent year-on-year to USD 3.18 billion, a senior official in the Department of Industrial Policy and Promotion (DIPP) told PTI.

Foreign inflows in April dipped to USD 1.85 billion from USD 3.12 billion in April 2011.

Contraction in FDI will keep the balance of payments under pressure and could also impact the rupee. If the prices of commodity and oil increases globally, a weaker domestic currency will add to inflationary pressures.

The sectors which received large FDI inflows in May include services (USD 754 million), pharmaceuticals (USD 401 million), construction (USD 181 million) and power (USD 100 million).

In May 2012, India received the highest FDI from Mauritius (USD 1.12 billion million) followed by the Netherlands (USD 409 million), the UK (USD 378 million), Singapore (USD 231 million) and Cyprus (USD 177 million), the official added.

The inflows had aggregated to USD 36.50 billion in 2011-12 against USD 19.42 billion in 2010-11 and USD 25.83 billion in 2009-10.

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