The sharp drop in net foreign direct investment (FDI) inflows into India over the past year was in part a consequence of the rise in global interest rates and the worsening global economic backdrop. But it was also due to a clampdown on the roundtripping of funds by Indian firms through offshore subsidiaries at lower tax rates. In that sense, the latest figures are a better reflection of the “true” level of FDI inflows. Looking ahead, we think FDI inflows into India will recover over the coming years as global economic fragmentation becomes an increasingly important factor in the decision-making of foreign firms.
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