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FOREIGN direct investments (FDI) in May dropped 43% to $2.2 billion compared to the $3.9 billion received in the same month of the previous year, department of industrial policy & promotion (DIPP) secretary Ajay Shankar said.

Despite the sharp decline, the government was confident of the flow of foreign capital into the country improving. Speaking on the sidelines of a Confederation of Indian Industry (CII) seminar, Mr Shankar cited the country’s “promising” industrial output in June for a better FDI show in the months to come. “We think, with liquidity improving and confidence in the economy rising, these (FDI) numbers should pick up,” he said.

But the FDI numbers since January have been anything, but promising. In April, FDI inflows fell 38% to $2.34 billion from $3.74 billion a year ago. And in the calendar year 2009 up to April, FDI inflows slipped by nearly 46% from the year-ago period to $8.5 billion, as per the latest figures released by DIPP.
Not surprisingly, the government had scaled down the FDI target by $5 billion from $35 billion last fiscal.

The reason for the depleted overseas capital inflows is the reluctance of foreign investors to put their money in risky emerging markets. But some experts see India’s 6.7% growth in 2008-09, when developed countries struggled with recession, bringing back foreign investors.

In the first six months of 2008-09, FDI inflow was $27.3 billion compared to $24.5 billion in 2007-08. Cumulative FDI inflow from April 2000 to March 2009 was about $90 billion, as per DIPP data.

The department collects data on foreign investment from RBI and releases monthly updates. Mauritius, with which India has a double taxation avoidance agreement, is the largest contributor of FDI into India, followed by Singapore and the US.

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