Foreign portfolio investment (FPI) in India fell sharply to (-) Rs 40,936 crore in 2022-23, a sharp decline from a healthy Rs 2,67,100 crore inflows recorded in 2020-21.
There are a number of factors that have contributed to the decline in FPI inflows into India. These include:
- The ongoing war in Ukraine: The war in Ukraine has led to a global economic slowdown, which has dampened investor sentiment towards emerging markets like India.
- Rising interest rates: The US Federal Reserve has raised interest rates several times in recent months, which has made it more expensive for investors to invest in emerging markets like India.
- Weakening rupee: The Indian rupee has weakened significantly in recent months, which has made it more expensive for foreign investors to invest in India.
The decline in FPI inflows is a cause for concern for the Indian economy. FPIs are a major source of foreign exchange for India, and their decline could put pressure on the rupee and the Indian stock market.
However, there are some positive signs. In the first quarter of 2023-24, FPI inflows have been positive. This suggests that the decline in FPI inflows may be bottoming out.
It remains to be seen whether the decline in FPI inflows will be a temporary or a permanent phenomenon. However, the Indian government is taking steps to attract foreign investment. These include:
- Increasing the foreign direct investment (FDI) limit in several sectors.
- Introducing a new tax regime for foreign investors.
- Simplifying the process of doing business in India.
These measures are likely to help to attract foreign investment into India in the coming years.
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