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Foreign direct investments (FDI) last fiscal fell 28% to a four-year low, data showed on Thursday, raising concerns over stability of capital flows. This is also the first time in five years that FDI is lower than portfolio flows. A slowdown in FDI means the economy is not getting enough long-term foreign funds to invest in projects and add physical assets, such as plants and machinery.

Provisional data released by the Reserve Bank of India (RBI) pegged total FDI at $27.024 billion as of end March. This included fresh equity in green-field projects, reinvested earnings as well as change in ownership of existing equity by new investors. Investments in new projects stood at $20.09 billion, the lowest that the country has received in the last four years.

The central bank had said last week “this was mainly on account of lower FDI inflows under services and construction, real estate and mining. Also, the slowdown in domestic investments has proved to be a disincentive for global investments in the Indian market. If one looks at the Q3′11 GDP growth numbers, the investment growth is less than 7%, even though the economy grew 8.2%”.

The bank has warned that the slowdown in FDI is because of concern over stability of capital flows. “The dominance of portfolio equity flows and the decline in FDI raise concern over the stability of capital flows,” it said. AGoldman Sachs report in November 2010 had said, “Given the excess spare capacity globally, FDI may remain weak going forward. Indeed, after the Asian financial crisis of 1997, FDI to the region remained weak for several years. Thus, the Basic Balance of Payments (BBOP) may be in deficit in FY12.”

A section of the market feels that since globally FDI is expected to pick up this year, India too could benefit. According to the United Nations Conference on Trade and Development (UNCTAD), growth in global FDI flows is likely to accelerate to 15% to 30% in 2011 from 1% in 2010 and India should benefit from this, said a recent report by Standard Chartered Bank