The global financial crisis that spilled over into its second year choked flow of foreign direct investment (FDI) into India in 2009, forcing the government to loosen rules for investments. However, the government kept multi-brand retail off-limits to foreigners, reports PTI.

In the first nine months of 2009, FDI dipped by 26% to $21.40 billion from $29 billion a year ago. The total FDI inflow into India since 2001 crossed the $100 billion mark.

Although fund inflow was constrained, FDI became the cause of confusion over the issue of ownership patterns of seven Indian lending institutions, including ICICI Bank Ltd and HDFC Ltd.

But these institutions have maintained that they are Indian as they are controlled by Indian banking regulations, and have Indian Boards and management.

While the Union government simplified norms aimed at attracting more FDI, it has yet to get the Insurance Bill approved by Parliament. The Bill seeks to raise the FDI cap in the insurance sector to 49% from 26%.

The year also saw the Organisation of Economic Cooperation and Development (OECD) and global firms including retail giants like Wal-Mart asking India to open the lucrative multi-brand retail sector for FDI. However, opening up of the retail sector does not appear likely in the near future.

On a global scale, OECD estimates suggest that total FDI into the 30 OECD countries will fall to $600 billion in 2009 from the 2008 total of $1.02 trillion.

Since the epicentre of the crisis was in the US, India was one of the few nations which remained relatively stable.

Economists say that foreign investment in India was good and remained buoyant as the domestic demand was good and the economy exhibited robust growth, despite the global downturn.

"Capital is chasing opportunities," CRISIL chief economist DK Joshi said, adding that capital coming to India is not a surprise.

The OECD wanted India to liberalise its FDI, especially in the retail, banking and insurance sectors—the key areas of interest for global investors.

“India’s policy on multi-brand retail acts as a social security net for millions of small retail traders in the country," commerce and industry minister Anand Sharma said recently. A Parliamentary panel has already suggested a blanket ban on FDI in the retail sector.

The year 2009 also saw intensive efforts like road shows in Europe by different ministries—including those for textiles and roads—to attract FDI.

OECD secretary general Angel Gurria recently said, "India’s FDI performance and progress in the past year has been particularly strong, even in a very tough global environment."
— Yogesh Sapkale