FDI inflows into India, which have witnessed a 15 per cent decline in the first three quarters of FY23, may see a turnaround in the next financial year as there are a number of proposals in the pipeline, which are likely to materialise in the early months of 2023-24, a government official has said.

“The FDI proposals, currently being processed, are in areas such as financial services, pharmaceuticals, medical devices, renewable energy and electronics. Many of them are connected to the production-linked incentive (PLI) scheme that incentivises domestic manufacturing,” an official from the Department for Promotion of Industry and Internal Trade (DPIIT)l told businessline.

The sectors, which are covered under the PLI scheme, have witnessed an increase in FDI inflow in the current fiscal include drugs and pharmaceuticals, food processing, medical appliances and electronics.

Some sectors, which never saw much FDI inflow in the past years, have seen a positive trend in the current fiscal, such as agriculture machinery, rubber, vegetable oil, vanaspati, tea, coffee, and scientific instruments, the official said.

Drop in inflows

The drop in FDI equity inflows in April-December 2022 to $36.75 billion, compared to $43.17 billion in the comparable period last fiscal, is largely due to a decline in sectors such as computers, IT hardware and automobiles, which could be attributed to the geopolitical situation, including the on-going Ukraine war, the official added.

“There is a semiconductor chips shortage worldwide and this has affected our IT hardware and automobile sectors. The recessionary trend in many countries in the West and the rising interest rates globally have also impacted India’s FDI inflow,” the official.

In almost all the top source countries for India’s FDI, including the US, the Netherlands, Singapore and the UK, interest rates have increased in the range of 3-4 per cent in the past year, the official said. 

“Countries like the US are trying to ensure that their investments don’t flow out and get invested domestically,” they added.

The shrinkage in venture capital investments in start-ups is also due the Covid-19 bubble getting “re-organised’’.

“Covid-19 gave a hype to the software part of IT technology and a lot of apps got made because people were sitting in their houses and using these apps. What we see now is a re-organisation as the situation has changed,” the official said.

Now, with the PLI scheme gathering steam, the government focussing on semiconductors and the budget ear-marking considerable funds for capital investments, the unfavourable factors that hurt FDI inflows are slowly getting addressed, the official added.