Precipitous Decline in FDI in Last Two Years of Modi’s Tenure

Foreign investment inflows (FDI) into India may be drying up even faster in 2023-24 than in 2022-23, when net FDI inflows declined 27% to a mere $28 billion. It was the biggest decline in a decade. Many global analysts have expressed concern over the unprecedented decline in net FDI inflows in 2022-23. Now, it seems that 2023-24 could be a bigger cause for worry.

Speaking on CNBC TV18, a Grant Thornton analyst said there was a 92% decline in cross-border M&A deals in India in the first half of 2023 (they publish monthly data). One assumes that this deep, declining trend is not going to reverse during the rest of the year (both calendar and financial).

A 92% decline may reflect serious underlying trends. One, it will curtail overall FDI flows in 2023-24, because cross-border M&As are a big component. During the Covid year of 2020, Reliance Jio alone attracted $20 billion via acquisition of up to a 33% stake in it by Google and Facebook. Two big share acquisitions dominated overall FDI flows into India. Some big pension funds and sovereign wealth funds also invested in Reliance Jio in 2020. Other startups (unicorns) also got equity investments in 2020-2021.

The acquisition of technology shares formed a substantial chunk of FDI inflows into India in recent years. This has dried up in 2023, and is clearly showing up in the 92% decline in cross-border mergers and acquisitions, as pointed out by Grant Thornton.

Global growth pessimism is an important reason for this big decline in cross-border M&As. Western corporations are cautious about making big investments. A rise of 4-5 percentage points in interest rates in the US and EU, which has sucked easy money out of the system, is another reason. Such moneys have found their way into India to do leveraged buyouts. Geopolitical strategy is also important. India had begun to shun Chinese FDI after the 2020 border clashes with China. China has been a large investor in Asian economies over the last 10 years. In fact, most top tech startups in India had big initial doses of Chinese investments, but are having to look for non-Chinese sources for subsequent rounds of funding. All these factors have come together to create a perfect storm.

Foreign investment inflows (FDI) into India may be drying up even faster in 2023-24 than in 2022-23, when net FDI inflows declined 27% to a mere $28 billion. It was the biggest decline in a decade. Many global analysts have expressed concern over the unprecedented decline in net FDI inflows in 2022-23. Now, it seems that 2023-24 could be a bigger cause for worry.

Speaking on CNBC TV18, a Grant Thornton analyst said there was a 92% decline in cross-border M&A deals in India in the first half of 2023 (they publish monthly data). One assumes that this deep, declining trend is not going to reverse during the rest of the year (both calendar and financial).

A 92% decline may reflect serious underlying trends. One, it will curtail overall FDI flows in 2023-24, because cross-border M&As are a big component. During the Covid year of 2020, Reliance Jio alone attracted $20 billion via acquisition of up to a 33% stake in it by Google and Facebook. Two big share acquisitions dominated overall FDI flows into India. Some big pension funds and sovereign wealth funds also invested in Reliance Jio in 2020. Other startups (unicorns) also got equity investments in 2020-2021.

The acquisition of technology shares formed a substantial chunk of FDI inflows into India in recent years. This has dried up in 2023, and is clearly showing up in the 92% decline in cross-border mergers and acquisitions, as pointed out by Grant Thornton.

Global growth pessimism is an important reason for this big decline in cross-border M&As. Western corporations are cautious about making big investments. A rise of 4-5 percentage points in interest rates in the US and EU, which has sucked easy money out of the system, is another reason. Such moneys have found their way into India to do leveraged buyouts. Geopolitical strategy is also important. India had begun to shun Chinese FDI after the 2020 border clashes with China. China has been a large investor in Asian economies over the last 10 years. In fact, most top tech startups in India had big initial doses of Chinese investments, but are having to look for non-Chinese sources for subsequent rounds of funding. All these factors have come together to create a perfect storm.

Foreign investment inflows (FDI) into India may be drying up even faster in 2023-24 than in 2022-23, when net FDI inflows declined 27% to a mere $28 billion. It was the biggest decline in a decade. Many global analysts have expressed concern over the unprecedented decline in net FDI inflows in 2022-23. Now, it seems that 2023-24 could be a bigger cause for worry.

Speaking on CNBC TV18, a Grant Thornton analyst said there was a 92% decline in cross-border M&A deals in India in the first half of 2023 (they publish monthly data). One assumes that this deep, declining trend is not going to reverse during the rest of the year (both calendar and financial).

A 92% decline may reflect serious underlying trends. One, it will curtail overall FDI flows in 2023-24, because cross-border M&As are a big component. During the Covid year of 2020, Reliance Jio alone attracted $20 billion via acquisition of up to a 33% stake in it by Google and Facebook. Two big share acquisitions dominated overall FDI flows into India. Some big pension funds and sovereign wealth funds also invested in Reliance Jio in 2020. Other startups (unicorns) also got equity investments in 2020-2021.

The acquisition of technology shares formed a substantial chunk of FDI inflows into India in recent years. This has dried up in 2023, and is clearly showing up in the 92% decline in cross-border mergers and acquisitions, as pointed out by Grant Thornton.

Global growth pessimism is an important reason for this big decline in cross-border M&As. Western corporations are cautious about making big investments. A rise of 4-5 percentage points in interest rates in the US and EU, which has sucked easy money out of the system, is another reason. Such moneys have found their way into India to do leveraged buyouts. Geopolitical strategy is also important. India had begun to shun Chinese FDI after the 2020 border clashes with China. China has been a large investor in Asian economies over the last 10 years. In fact, most top tech startups in India had big initial doses of Chinese investments, but are having to look for non-Chinese sources for subsequent rounds of funding. All these factors have come together to create a perfect storm.