Foreign direct investment (FDI) inflows into the services sector declined by 3.5% to $4.66 billion during the April-January period of last fiscal, according to the Department of Industrial Policy and Promotion (DIPP).
The financial and non-financial services sector had attracted FDI worth $4.83 billion during the same period in the previous year.
"The global economic situation is still not healthy. Investors are hesitant to invest their money in the sector," an official said.
As far as overall FDI inflows are concerned, during the April-January period of 2012-13 financial year, it declined by 39% to $19.10 billion.
In 2011-12, foreign investment in the services rose to $5.21 billion from $3.29 billion in 2010-11.
Service sector contributes over 60% to India’s GDP.
The other sectors which have received FDI during April-January 2012-13 include hotel and tourism ($3.19 billion), metallurgy ($1.38 billion), construction ($1.2 billion) and drugs ($1 billion).
India received maximum FDI from Mauritius ($8.17 billion), followed by Japan ($1.69 billion), Singapore ($1.82 billion), the Netherlands ($1.51 billion) and the UK ($1.04 billion). Expressing optimism, the official said liberalisation of the FDI policy in various sectors would help boost inflows in the coming months. It has allowed FDI in multi-brand retail sector besides hiking the cap to 100% in the single brand retailing.
Foreign investments are considered crucial for India, which needs around $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.