A wide variety of indicators show that India's growth trend remains robust. Corporate sector leverage is at a cyclical low while earnings growth is expected to pick up. Indian banks are very well-capitalized. Credit growth at around 16 percent, is close to pre-pandemic highs.

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There is even a whiff of a new capex uptick. To boot, India’s external facing macro indicators have also seen a remarkable turnaround for the better in the last three quarters.

Amidst all this cheer, we got some sobering news from the RBI’s monthly bulletin (released on May-22, 2023).

Gross FDI into India has seen a 16 percent fall in financial year 2023 (FY'23). Inflows stood at $71 billion in FY'23 as compared to $84.8 billion in FY'22. This is the first time we have seen inflows decline YoY in the last 10 years.

The slowdown in FY’23 in absolute numbers is clear from the chart above. A look at this data in percent terms is also helpful for context. JP Morgan in a note dated (May-19th) points out that, “net FDI has averaged about 1.4 percent of GDP over the last eight years – with pandemic-year FDI increasing to 1.6 percent of GDP – a meaningful increase over the 1 percent of GDP averaged in the decade before.

Over the last three quarters (July-February), however, FDI is tracking an annualized run rate of 0.7 percent of GDP ($22 billion), just about half of the typical run rate.”

Also read: RBI guv Shaktikanta Das says pausing interest rate hikes not in his hands

To be sure, the drop in FY’23 comes off the back of a very high base in FY’22 (nearly $85 billion). Economists I spoke to told me that they had expected some softening.

As we look to FY’24, it is clear that MNCs are increasingly drawn to India as they seek to diversify their production away from China and tap into the immense growth potential of India's market.

This trend is particularly evident in the mobile phone industry, with Apple recently announcing its plans to manufacture a significant portion of its new models in India by 2025.

Also read: RBI governor expects FY23 GDP to be slightly above 7%, sticks with 6.5% estimate for ongoing fiscal

India's thriving service exports have opened up the possibility of more MNCs establishing back offices in the country, driven by the allure of cost advantages and a skilled workforce. The expectation is that as a few leading companies in various sectors establish their presence in India, their actions will serve as a catalyst for attracting more Foreign Direct Investment (FDI) to the country.

Meanwhile. the government and the private sector will have to double down on efforts to get more global companies to invest in India.

Also read: FDI firms witnessed great recovery in 2021-22 as COVID impact diminished: RBI

First Published:May 24, 2023 3:12 PM IST