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Policy uncertainty hurt India’s FDI flows in FY11, finds RBI study

After the global financial turmoil, the Indian economy recovered to grow at 8.4 percent in 2010-11. But in the same year, foreign direct investment (FDI) flows fell to USD20.3 billion from USD27.1b a year ago due to policy uncertainty, according to a Reserve Bank of India study.

A comparison of FDI flows to India vis-à-vis the potential showed investments tracked the potential level till 2009-10, before falling by about 25 percent during 2010-11.

The quality of policy implementation had a role in slowing the flow of investments despite the robust nature of the Indian economy. Growth prospects, openness, labour costs and policy environment significantly impacted the FDI flows, the RBI study said.