Global investors seem less bullish on India after a series of policy flip flops by the government sapped confidence. Latest data released by the Reserve Bank of India showed that foreign direct investment inflows slipped nearly 8% to $7.8 billion during January-April 2012.
In April, the latest period for which data is available, FDI, including retained earnings by companies, are estimated to have declined nearly 38% to $1.94 billion, compared to $3.1 billion a year ago. FDI inflows have now declined for two straight months.
In recent weeks, foreign institutional investors too have pulled out funds from India as part of a “flight to safety” and are either holding cash or parked in safer bets such as US Treasury bonds or even gold. As a result, the rupee has emerged as the worst-performing Asian currency and is also at the bottom of the heap in the global sweepstakes.
The growth moderation in India too has affected sentiments and rating agencies Fitch and Standard and Poor’s have also rung warning bells saying that reforms need to be pushed through, else Asia’s third largest economy will have to contend with junk-grade status.
With the government resorting to retrospective amendments to tax laws and planning to invoke general anti-avoidance rules (GAAR) from next April, the overall investment climate is seen to be hostile towards international investors.