India received $2.2 billion foreign direct investments (FDI) in May this year, department of industrial policy & promotion (DIPP) secretary Ajay Shankar said. There is a 43% drop in the FDI inflow in May 2009 compared to $3.9 billion received in the same month of the previous year. The inflow of foreign capital into the country will improve now, as the country’s industrial output in June looks “promising,” Mr Shankar said on the sidelines of a seminar by Confederation of Indian Industry (CII). “We think, with liquidity improving and confidence in the economy rising, these (FDI) numbers should pick up,” he said. The government had scaled down the FDI target by $5 billion from $35 billion last fiscal.

In April 2009, FDI inflow had fallen by 38% to $2.34 billion from $3.74 billion a year ago. In the calendar year 2009 up to April, FDI inflow into the country slipped by nearly 46% from the year-ago period to $8.5 billion, as per the latest figures released by DIPP. Inflow of foreign capital dried up as foreign investors were reluctant to put their money in risky emerging markets but India’s 6.7% growth in 2008-09 when developed countries struggled with recession is expected to bring foreign investors back. 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 the 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 USA. Services sector attracts the largest share of foreign capital, followed by computer software and hardware, telecommuniation, housing and real estate. Mr Shankar expressed confidence that there would be “continuous improvement” in industrial output. Official data released earlier this month had shown industrial output rising for the second straight month in May, fueling hopes of faster economic growth. Led by the consumer durable sector, the Index of Industrial Production (IIP) rose by 2.7%, its biggest increase since October 2008.

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