Foreign direct investment (FDI) into India was sharply lower at $22.05 billion in the first ten months of the current financial year, compared with $34.83 billion in the corresponding period last year.

Among others, controversies surrounding land acquisition, environment clearance and bureaucratic hurdles are the reasons for the slowdown in FDI, say economists.

The RBI, in its third quarter review of monetary policy in January, had flagged the issue of decline in FDI. “While bank credit to the commercial sector surged (in the April-December 2010 period), the flow of funds from other sources was lower than last year's level mainly on account of lower net inflows from FDI,” the RBI said in the review.

Concerned about the slowdown in FDI, the RBI Governor, Dr D. Subbarao, last month said that the central bank would conduct an internal study on the factors responsible for the decline in FDI.

“India presents a strong potential for FDI inflows and the Government needs to draw up a policy roadmap to attract the same,” said Dr Shubhada Rao, Executive Vice-President & Chief Economist, Yes Bank.

Given that an investment of over $1 trillion is envisaged for infrastructure projects during the next Five-Year Plan beginning 2012, the Government needs to put in place a single widow system to clear infrastructure projects, she added.

FII inflows buoyant

Even as FDI has seen a substantial slowdown, the inflows on account of investments by foreign institutional investors (FIIs) were buoyant, as per the latest RBI data.

Attracted by the good returns in the Indian equity market vis-à-vis developed markets, FIIs pumped in $31.03 billion in the first ten months of the current financial year. In the corresponding period last year, FII investments amounted to $23.61 billion.

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