Foreign direct investment (FDI) into the services sector declined by about 60 per cent to USD 1.59 billion in the first nine months of this financial year.
The services sector, which includes banking, insurance, outsourcing, R&D, courier and technology testing, had received FDI worth USD 4.04 billion in the April-December period of 2012, according to data with the Department of Industrial Policy and Promotion (DIPP).
An industry expert said foreign investors are waiting for the next government.
"Worldwide, foreign investors are eagerly waiting for elections. They want to take a call after the formation of the new government," said Krishan Malhotra, head of the tax division at corporate law firm Amarchand & Mangaldas.
The month-long general election will start on April 7, with polls staggered over nine stages.
With the drop in FDI in services, overall foreign inflows in the country dipped by 3 per cent to USD 22 billion during the nine-month period. Investments of USD 22.78 billion were made in April-December 2012.
The services sector contributes over 60 per cent to India's GDP.
Other sectors where inflows have declined include construction development, metallurgical industries and hotel and tourism.
Foreign investment is considered crucial for India, which needs about USD 1 trillion in the five years ending March 2017 to develop infrastructure such as ports, airports and highways and boost growth.
A decline in foreign investment could affect the country's balance of payments and the rupee.