Decline in FDI Inflow

For the first time in the last six years, the foreign direct investment (FDI) in India has declined. The FDI inflow declined by 1 per cent to $44.37 billion in 2018-19.

Why there was a decline in FDI Inflow?

The decline in the FDI inflow is attributed to:

  • Stressed financial condition of the telecom sector.
  • Uncertainty in the pharma sector.
Telecom Sector

The telecom sector is under a stressed financial condition. The FDI in the sector fell to $2.67 billion during 2018-19 from $6.21 billion a year ago.

The consolidation which the Indian telecom sector (merger of Idea and Vodafone) is undergoing has also caused an impact. FDI was mainly being brought in to expand infrastructure but with consolidation happening, the entities are now making joint investments so that is taking the number down.

With the government providing necessary relief and the economy grows as expected, the FDI levels would bounce back. With telecom firms gearing up for 5G, there will be an uptick in investment, which will also reflect in the FDI levels.

Pharmacy Sector

FDI in pharmaceuticals fell from $1 billion in 2017-18 to $266 million in 2018-19. The decline in the FDI is attributed to

  • Regulatory uncertainty in India.
  • Lack of a proper environment for companies to invest in the growing opportunities in this space.
  • Disinvestments by global firms to release capital.

The uncertainty is attributed to pricing pressures in the US markets, FDA inspections and dark clouds over drug approvals push towards generic-generics and reduction in drug prices as more drugs come under the NPPA scanner.

Earlier years, the key FDI inflows into the pharmaceutical sector in India were through inbound mergers and acquisitions but have not occurred in the 2018-19 financial year.

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