Foreign Investment Declines in India as Elections Loom

For many years, India has been one of the biggest destinations for investment for anyone looking to bet on an emerging economy and foreign investment has gone up steadily over the last decade. When the supposedly business-friendly Narendra Modi became the Prime Minister in 2014, there was hope that foreign investment was going to continue on its upward trajectory. However, that has not come to pass, and according to most recent data, the foreign investment into India has gone down on a yearly scale for the first time in the present PM’s tenure.

The factors behind the decline are manifold. The general elections are going to take place in India this year, and there is uncertainty about which way it would go. In addition to that, the Indian government has now taken a protectionists stance in terms of competition in business, and that has also deterred many from investing in India. According to the latest set of data for the period between April and December in 2018, foreign direct investment (FDI) was pegged at $33.5 billion. However, that reflects a steep decline of 7% from FDI flows of $36 billion for the same period back in 2017. Experts believed that the flow of FDI into India would remain beaten down for the foreseeable future as the country prepares for an election. Investors might be waiting to see which party forms the government before placing their bets for the next cycle.

However, that is only one aspect of the story. The other big issue is that the Indian government might be moving towards a more protectionist approach when it comes to competition. Recently, the government introduced e-commerce regulations that have severely affected the operations of Amazon India and Walmart’s Flipkart. Some of the measures include barring these companies from owning equities in vendors who sell on their site and stopping exclusive deals altogether.

Considering the fact that Walmart made a $16 billion bet on local e-commerce company Flipkart only last year, the move has come as a bit of a shock. The introduction of those regulations has not been taken kindly by investors. Speaking about the developments, founder of a business network Sachin Taparia said, “Lack of policy certainty along with upcoming elections are two reasons that the reduction in foreign direct investments can be attributed to.” An official in the commerce and industry ministry in India, however, brushed it off and stated that India has opened up almost all key sectors for foreign investors.

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