FDI in service sector drops by 22.5%

30 May 2011 Evaluate

The Foreign Direct Investment (FDI) in service sector has decreased by 22.5% in 2010-11, mainly due to slow global recovery and uncertainty in Euro zone. According to Industry Ministry data, FDI in service sector dropped to $3.4 billion in 2010-11. Last year service sector had received FDI worth $4.39 billion. Service sector which contribute more than 50% to the nation’s economic growth has the largest share in FDI inflow despite the fall the recent fall.

Experts have cited that the fall in FDI is mainly because of the global financial crisis especially in European market that is making investors cautious of undertaking overseas investments. However, they further opine that investors are gaining their confidence as the global market is recovering and there is good possibility that service sector will attract more FDI in 2011-12.

The FDI in service segment was followed by telecommunication segment ($1.6 billion), automobile ($1.33 billion), power ($1.25 billion), housing and real estate ($1.12 billion) and metallurgical industries ($1.10 billion). Mauritius, Singapore, the US, UK, Netherlands, Japan, Germany and the UAE, among other countries, are the major investors in India.

Falling FDI inflow rate in the economy is alarming for the Indian government. Overall FDI inflow into country has decreased by 25% to $19.4 billion during 2010-11 compared to $25.8 billion in 2009-10. In the same period other emerging economies experienced increase in FDI inflow. To attract more foreign investment in India, government is taking steps like allowing FDI in Limited Liability Bill, permitting the issuance of equity to overseas firms against imported capital goods and machinery, and in latest development government is expected to open its politically sensitive Multi-band retail sector for investment.

However, there is still long way to go and the Indian government needs to take a serious policy action, not only in terms of investment friendly policy but also for implementation. There are so many examples of Major FDI project being stuck at implementation stages for years. The well known example is India’s largest FDI project worth $12 billion by South Korean steel company Posco, its implementation is delayed by 6 years.

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