Foreign direct investment (FDI) inflows into India’s services sector declined by 18 per cent to $745 million (about Rs 4,134 crore) during April-May this fiscal due to uncertain global economic conditions.

The financial and non-financial services sector had attracted FDI worth $910 million during April-May 2011-12, according to official data.

Experts feel the global economic crisis and domestic taxation issues are affecting foreign inflows in the sector.

“Taxation issues related with GAAR and retrospective amendment in the Income Tax Act along with declining confidence among investors in the country are hitting FDI in the sector,” Head of Tax and expert on FDI with corporate law firm Amarchand & Mangaldas Krishan Malhotra said.

The decline comes during the time when the economic growth in India slowed to a nine-year low of 6.5 per cent during the last financial year.

Overall FDI in India, too, declined sharply for the second month in a row in May to $1.32 billion from $4.66 billion in the year-ago period.

Sectors that attracted sizeable FDI inflows during the first two months of the current fiscal include drugs and pharmaceutical ($401 million), metallurgical ($314 million), construction ($181 million) and housing and real estate ($132 million).

During the period, the highest FDI of $1.12 billion came from Mauritius, followed by the Netherlands ($409 million) and the UK ($378 million).

(This article was published on August 20, 2012)
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