Foreign direct investment in India nearly halved in January from a year earlier, data showed Wednesday, amid investor concern over corruption, bureaucratic delays and a lack of economic reform. Even with economic growth running at close to nine percent, foreign direct investment (FDI) slumped 48 percent to $1.04 billion in January from $2.04 billion in the same month last year, official data showed.
FDI in India has been dropping amid a slew of corruption scandals, investor concern over bureaucratic red tape, rising inflation and perceived government resistance to opening up the economy. "These are worrisome figures. The government will have to look at long-pending (economic) reforms to boost foreign investment," said Rupa Rege Nitsure, chief economist with the state-run Bank of Baroda.
Foreign investors have been clamouring for the government to further open up sectors such as retail, insurance and real estate to outside money. But since the left-leaning Congress-led government was re-elected two years ago, it has taken no major steps on opening up the economy. In the 10 months to January of the current fiscal year to March 31, FDI fell 25 percent from the same period a year earlier to $17 billion.
"The numbers are bad. Going by the trend, it appears that India will receive less FDI in 2010-11 compared to the previous fiscal year. The global economic recovery is fragile," said DK Joshi, principal economist at ratings agency and analysis firm CRISIL.Foreign investment is vital for India, which needs to fund a $1 trillion scheme over the next five years to overhaul its dilapidated ports, airports, highways and other infrastructure seen as key to boosting economic growth.
The central bank has said India "needs a quantum step" in investment to propel growth to double-digit levels needed to reduce massive poverty. It has also noted that the biggest drops in investment have hit construction, real estate, mining, and business and financial services. The FDI decline comes as India's regional rivals are drawing ever more investment from abroad.
Singapore grabbed 122 percent more FDI in 2010 than in the previous year with $37 billion, China drew 6.3 percent more than in 2009 with $100 billion, and FDI inflows into Malaysia grew by a staggering 410 percent to $7 billion, according to UN data. Finance Minister Pranab Mukherjee said last week that the government was discussing ways to further liberalise foreign direct investment, which could trigger more capital inflows.