Karnataka sees 46% dip in FDI inflow this year

Karnataka has seen a sharp decline in the inflow of foreign direct investment (FDI) during the first six months of the current financial year, as political instability and improvement in the US macros are weaning away investors.

After witnessing a record inflow during the corresponding period last year, when the state attracted $4.7 billion (Rs 30,420 crore), it has seen a 46% decline to $2.5 billion (Rs 17,234 crore) in foreign investment between April and September 2018, according to data revealed by the Reserve Bank of India (RBI) recently.
This indicates that the performance for the whole year may also be retarded. The country as a whole has also seen a drop in FDI inflow on the back of political uncertainty and a rise in investment options within the US.

Although this is commensurate with the national trend of declining FDI — all-India FDI figures stood at $22.6 billion in the first half of this year compared to $25.3 billion the previous year — Karnataka was expected to at least match the investments from the previous year.

Two other big states — Maharashtra and Tamil Nadu — also reported a decline of 46% and 29%, respectively, while New Delhi, Gujarat, Andhra Pradesh and Telangana reported an increase, the RBI data shows.

“There is a lot of political uncertainty in the state of Karnataka. So it will obviously impact the mindset of investors,” an industry insider told DH, wishing anonymity.

Some other experts, like Madan Sabnavis of Care Ratings, attribute the drop in FDI to the global phenomenon. “Because of the economic recovery in the West, there are fewer funds flowing to India... Also, the issues pertaining to visa rule are impacting it,” he said.

Rationalisation?

An analysis of data for the same period in the past five years reveals that Karnataka had seen an extraordinary increase in FDI in 2017-18 and that the decline this year could simply be because the investments have rationalised.

Compared with the $4.7 billion in FDI in the first half of 2017-18, the state had garnered $1 billion, $2.1 billion and $1.1 billion in the same period during 2016-17, 2015-16 and 2014-15, respectively. For the whole year, FDI into Karnataka saw a four-fold increase to touch $8.5 billion.

“During 2017-18, the FDI flow saw a 300% rise over 2016-17 — a bit of an aberration. In the current year, it is more in line with the long-term trend and we have been in overall third place in the country. Some sectors like computer hardware/software and telecom have shown a little slowdown in FDI compared to last year,” said Gaurav Gupta, Principal Secretary, Department of Industries, Government of Karnataka.

However, Karnataka stood at the second slot when it came to FDI flow during the same period.