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Source: This post is created, based on the article “PM Modi’s Australia visit: Love in Sydney”, published in Indian Express on 26th May 2023.
Syllabus Topic: GS Paper 3 – Mobilisation of resources
Context: India’s medium-term growth outlook looks weak due to declining real investment into India.
Recently Reserve Bank of India (RBI) governor said the growth rate for 2022-23 might be more than the expected 7%.
However, the medium-term outlook of India’s growth is not very encouraging due to the level of investment coming into India. The RBI in its latest monthly bulletin has reported that gross FDI in 2022-23 declined by 16.3 per cent year-on-year to $71 billion.
FDI at net level declined by over 27 per cent to $28 billion, driven by lower gross inflows and a rise in repatriation.
Manufacturing, computer services, and communication services witnessed the steepest decline.
In terms of investment sources, the decline was led by the US, Switzerland, and Mauritius.
However, one positive trend in investment is that India was the second-largest recipient of FDI in semiconductors, after the US.
What are the reasons behind declining investment?
Big companies won’t be willing to expand due to Slow or below-trend global growth.
The hardening of global financial conditions.
The start-ups are finding it difficult to raise funds.
The inflation rate in advanced economies, particularly the US, is still higher than the target.
Large corporations leaving China, are not making India their destination.
What are the challenges of declining FDI?
Foreign multinationals bring technology, which increases overall efficiency in the economy. It will have effects on economic growth and jobs.
FDI is by definition for the long run, it provides stability to external accounts.
What steps can India take?
India has ample foreign exchange reserves; therefore, it won’t be a high risk for India.
Policymakers should focus on increasing the ease of doing business in India.
Government should review the trade policy, to see if it is obstructing the FDI into India.