Foreign direct investment (FDI) inflows into the services sector declined by about 62 per cent year-on-year to USD 1.36 billion during April-October of the ongoing fiscal.
The services sector, which includes banking, insurance, outsourcing, R&D, courier and technology testing, had received FDI worth USD 3.6 billion during April-October 2012, an official in the Department of Industrial Policy and Promotion (DIPP) told PTI.
According to industry experts, foreign investors are waiting for the new government.
"As services sector such as banking need necessary reforms, investors are waiting for the new government for bringing relevant changes in the policy. Although the present
government has taken steps to attract investments, more needs to be done," said Krishan Malhotra, an expert on FDI with corporate law firm Amarchand & Mangaldas.
In the banking sector, foreign capital inflows are low due to certain restrictive and tough norms, another expert said. In step with the drop in FDI in important sectors like services, overall foreign inflows in the country has come down to USD 12.6 billion during the seven months of the current fiscal. It was USD 14.78 billion in April-October 2012.
The services sector contributes over 60 per cent to India's GDP. In 2012-13, foreign investment in services fell to USD 4.83 billion from USD 5.21 billion in 2011-12.
The other sectors where inflows have declined include power (USD 320 million) and metallurgical industries (USD 245 million).
However, to attract investment, the government is considering raising the FDI cap in insurance sector to 49 per cent from 26 per cent. A Bill regarding this is pending in the parliament since 2008.
Foreign investments are considered crucial for India, which needs around USD 1 trillion in the next five years to overhaul its infrastructure sector such as ports, airports and highways to boost growth.
Decline in foreign investments could affect the country's balance of payments (BoP) situation and also impact the rupee.