Environment for FDI to grow not highly favourable, says Economic Survey
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Economic Survey grimly notes FDI challenges for emerging economies
By Our Special Correspondent
New Delhi, July 22: The Economic Survey has raised concerns at the prospects of the foreign direct investment (FDI) flow in the country. The Economic Survey has also noted the negative growth in FDI amid outflow of the capital.
The Economic Survey has stated that the “Indian economy is on a strong wicket and stable footing, demonstrating resilience
in the face of geopolitical challenges”. “The Indian economy has consolidated its post-Covid recovery with policymakers – fiscal and monetary – ensuring economic and financial stability,” said the Economic Survey, which was tabled in parliament on Monday ahead of the unveiling of the Union Budget on Tuesday.
But it noted that FDI has held up. “RBI data on India’s Balance of Payments shows us that the investment interest of external investors, measured in terms of dollar inflows of new capital, was $45.8 billion in FY24 compared to $47.6 billion in FY23. This slight decline is in line with global trends,” said the Economic Survey.
It also stated that the “reinvestment of earnings remained the same. Repatriation of investment was $29.3 billion in FY23 and $44.5 billion in FY24. Many private equity investors took advantage of buoyant equity markets in India and exited profitably”.
The environment for FDI to grow in the coming years is not highly favourable for many reasons, noted the Economic Survey. “Interest rates in developed countries are much higher than they were during and before Covid years. This not only means a higher cost of funding but also a higher opportunity cost to invest abroad,” argued the Survey document.
It also stated that the “emerging economies have to compete with active industrial policies in developed economies involving considerable subsidies that encourage domestic investment. Notwithstanding the impressive strides made in the last decade, uncertainties and interpretations related to transfer pricing, taxes, import duties and non-tax policies remain to be addressed”. Lastly, geopolitical uncertainties, which are on the rise, will likely exert a bigger
influence on capital flows, notwithstanding other reasons for preferring to invest in India, argued the Economic Survey.
The Economic Survey has argued that for “the recovery to be sustained, there has to be heavy lifting on the domestic front because the environment has become extraordinarily difficult to reach agreements on key global issues such as trade, investment and climate”.
“High economic growth in FY24 came on the heels of growth rates of 9.7 per cent and 7.0 per cent, respectively, in the previous two financial years. The headline inflation rate is largely under control, although the inflation rate of some specific food items is elevated,” added the Economic Survey.
The policy document also noted that the “trade deficit was lower in FY24 than in FY23, and the current account deficit for the year is around 0.7 per cent of GDP. In fact, the current account registered a surplus in the last quarter of the financial year”.
It also stated that the “foreign exchange reserves are ample. Public investment has sustained capital formation in the last several years even as the private sector shed its balance sheet blues and began investing in FY22”.
Now, it has to receive the baton from the public sector and sustain the investment momentum in the economy, said the survey. It added that the “signs are encouraging”.
“National income data show that non-financial private-sector capital formation, measured in current prices, expanded vigorously in FY22 and FY23 after a decline in FY21. However, investment in machinery and equipment declined for two consecutive years, FY20 and FY21, before rebounding strongly. Early corporate sector data for FY24 suggest that capital formation in the private sector continued to expand but at a slower rate.”
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