Tamil Nadu’s Foreign Direct Investment (FDI) inflows declined 27.7% to about $2.17 billion in the financial year 2022-23 from $3 billion in 2021-22, as per data shared in Parliament recently. Many other key States, except for Gujarat, have also seen a decline during this period.
India’s FDI inflows as a whole, declined 16.34% to $70.97 billion in 2022-23 from $84.84 billion in 2021-22, as per the provisional figures from the Reserve Bank of India, Union Minister of State for Industry and Commerce, Som Parkash, said in a written reply to a question in the Rajya Sabha on July 21, 2023.
As per the data shared, Maharashtra has seen a 4.08% decline in FDI inflows to $14.81 billion in 2022-23 from $15.44 billion in 2021-22, while Karnataka has seen a 52.74% drop to $10.43 billion from $22.07 billion during the same period. Delhi has seen a fall of 8.05% in FDI inflows to $7.53 billion in 2022-23 from $8.19 billion in 2021-22.
Gujarat however, saw its FDI inflows jump 74.4% to $4.71 billion in 2022-23 from $2.70 billion in 2021-22.
Interestingly, Tamil Nadu’s FDI inflows had increased 30.4% to about $3 billion in 2021-22 from $2.3 billion in 2020-21, while Gujarat’s flows had fallen to $2.70 billion from $21.89 billion in the same period.
Mr. Parkash also said the State and Union Territory-wise inflow is maintained only for the equity component of FDI inflows. A tighter financial environment and a string of financial crises in global markets in general and in developing markets in particular, may have triggered a fall in FDI inflows, he said.
Mr. Prakash also cited the economic crisis due to the Russia-Ukraine conflict as among the reasons for the decline. Post pandemic, countries have adopted various protectionist measures to decrease reliance on other countries and to protect their own domestic industries. This could also possibly be affecting investor sentiments. The real GDP growth rates of Singapore, U.S.A. and the U.K. have decreased in 2022, which are the major source countries for FDI, he added.
FDI took a hit worldwide in FY2023, and India had faced a similar trend. Post-COVID-19, the competition among State governments to lure FDI and private investments led to fluctuations in their capital expenditure rankings, said Shashikant Hegde, director and CEO of Projects Today, an investment monitoring firm.
T.N.’s fresh investments
As per the data shared by the firm, Tamil Nadu’s fresh investments increased to ₹1,73,494.34 crore in FY 2023 from ₹1,72,974.93 crore in FY 2022, with share of private investment at 75.20%.
Tamil Nadu, despite witnessing an increase in total fresh investments in FY2021, FY2022 and FY2023, saw its share in total investments decline from 9.57 percent in FY2021 to 4.69 percent in FY2023. Consequently, the State’s ranking slipped from No. 2 in FY2021 to No. 8 in FY2023, Mr. Hedge said. In FY2023, private capital expenditure saw an astonishing 90% year-on-year growth, but it was not distributed evenly across sectors, he pointed out.
The capital expenditure was concentrated in specific industries such as green hydrogen, semi-conductors, pumped hydel projects and electric vehicles among others, Mr. Hedge said. Most of these projects were super-mega size, with each project requiring an investment commitment of ₹5,000 crore or more, he added.
The competition to secure these prestigious projects was fierce, and only a few States emerged successful. Andhra Pradesh, Karnataka, and Gujarat dominated the scene and accounted for a significant 52.10 percent of the total private fresh investments announced in FY2023. As the battle for such projects heats up, States can expect even more intense competition in the years to come, Mr. Hedge said.
In light of this challenging environment, mega projects like Greenko Energies’s ₹7,622.43 crore pumped hydel power project, Volthills’s ₹4,771.56 crore hydel power project, and Pacifica’s ₹2,000 crore real estate project hold great promise for Tamil Nadu, he said.
Additionally, the recent announcement of Foxconn’s decision to set up its ₹1,600 crore electronics components project in Tamil Nadu adds to the State’s potential to attract more mega private and foreign projects, Mr. Hedge said.
As per data from the Department for Promotion of Industry and Internal Trade, under the Union Ministry of Commerce and Industry, Tamil Nadu has received cumulative FDI inflows of $8.5 billion from October 2019 to March 2023, accounting for 5% of the total flows.
