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Despite being the fastest growing economy in the world, India has been struggling hard to attract foreign direct investments (FDI) for the past few years. As a matter of fact, FDI equity inflow has contracted by 22 per cent in 2022-23 and till December 2023 fell by another 13 per cent. Acknowledging the problem, in a recent statement the finance ministry tried to calm nerves by claiming that the slump in FDI inflow was witnessed in all developing countries along with a rise in repatriation of investment. But there appears to be much more behind the crisis than what meets the eye. It is quite perplexing to note that even after announcing various sops to lure foreign investors to the country, India has failed to match smaller nations such as Vietnam, Thailand and Indonesia in attracting FDIs. The development clearly indicates that these countries have become favourite destinations of foreign investors as they are able to deliver quick and assured returns. Clearly, India has its work cut out to regain the favour of foreign investors to maintain steady economic growth.
It should be noted that during the last decade FDI in India had grown by 27 per cent but registered a growth of only 6.6 per cent in the present decade. Moreover, the FDI percentage in the country’s GDP has reduced to 2.1 per cent in 2022-23 from 2.7 per cent in 2021-22. The FDI percentage in GDP was as high as 3.5 per cent in the financial year 2008-09. These figures show that contraction of FDI in India has been taking place for a long time although the country has made remarkable improvements in ease of doing business and several other areas. It emphasises the need to adopt a proactive strategy to attract FDIs in-order to make India’s goal of becoming one of the top three major economies in the world a reality. Thus, to make India a favourite destination for foreign investors, the government should ease more restrictions instead of blaming the phenomenon of limited FDI on global economic slowdown. There is no denying that the world economy was severely hit by the pandemic, as several restrictions were imposed on travelling and trade to combat the deadly COVID-19 virus. After a lull of a few years, and despite ongoing conflicts around the world, economic activities are regaining momentum and India should go all out to reap maximum advantage of it.
In this context, India should take positive steps to allay fears of foreign investors about the existence of red tape in Indian bureaucratic circles. It can begin by easing the process of availing incentives announced to help industries and by adopting a stable tax policy. At the same time, getting clearance for setting up industries should also be made easy as often it has been found that the authorities take years to grant permission for new projects. Bottlenecks of such nature should be removed at the earliest to attract FDIs to further strengthen the Indian economy.