Foreign Direct Investment (FDI) has been a significant non-debt financial resource for India’s economic development, apart from being a vital driver of economic growth. In order to take advantage of comparatively lower salaries, special investment advantages like tax exemptions, etc., foreign companies invest in India. It also means acquiring technological know-how and creating jobs for a nation where foreign investment is being made.
The favourable policy regime and robust business environment of the Indian Government have ensured that foreign capital continues to flow into the country. In recent years, the government has taken many initiatives, including relaxing FDI standards across sectors such as defence, PSU oil refineries, telecommunications, power exchanges, and stock exchanges, among others.
What is the market size of foreign inflows?
FDI equity inflows in India stood at US$ 500.12 billion between April 2000 and September 2020, according to the Department for the Promotion of Industry and Internal Trade (DPIIT), suggesting that government measures to boost business ease and relax FDI standards are yielding results.
In India, FDI equity inflows were US$ 30.0 billion in 2020-211. (between April 2020 and September 2020). Data for 2020-21 shows that the computer software and hardware industry attracted the largest inflows of US$ 17.55 billion in FDI equity, followed by US$ 2.25 billion in the service sector, US$ 949 million in trading and US$ 437 million in chemicals (other than fertilisers).
India received the highest FDI inflows from Singapore (US$ 8.30 billion) in 2020-21 (between April 2020 and September 2020), followed by the US (US$ 7.12 billion), the Cayman Islands (US$ 2.10 billion), Mauritius (US$ 2.0 billion), the Netherlands (US$ 1.49 billion) and the UK (US$ 1.35 billion).
Gujarat earned maximum FDI equity inflows of US$ 16.0 billion in 2020-21 (between April 2020 and September 2020), followed by Maharashtra at US$ 3.61 billion, Karnataka at US$ 3.66 billion and Delhi at US$ 2.66 billion.
What are the most recent Investments/ Developments in the country?
The following are some of the relevant FDI announcements made recently:
- Total FDI inflows amounted to US$ 28.10 billion in the second quarter of FY21, of which US$ 23.44 billion was in equity inflows. Between April 2020 and September 2020, this boosted FDI equity inflows to US$ 30 billion, a 15 per cent rise on a y-o-y basis compared to the same timeframe in FY20.
- The Union Cabinet approved Rs. 2.480 crore (US$ 337.53 million) foreign direct investment (FDI) in ATC Telecom Infra Pvt Ltd. in November 2020.
- Amazon Web Services (AWS) announced in November 2020 that it would invest US$ 2.77 billion (Rs. 20,761 crore) in Telangana to set up multiple data centres, the largest FDI in the state’s history.
- The government has received over 120 proposals for foreign direct investment (FDI) since April 2020. From China, Rs 12,000 crores (US$ 1.63 billion) proposals have been received. India earned FDI of US$ 2.43 billion from China between April 2000 and September 2020.
- According to data provided by the Reserve Bank of India (RBI), the equity, loan and the guaranteed issue of India’s Outward Foreign Direct Investment (OFDI) stood at ~ US$ 1.06 billion in November 2020 vs. US$ 3.51 billion in October 2020.
What are the Government Initiatives that promoted FDIs?
The Uttar Pradesh government decided in December 2020 to provide Samsung Display Noida Private Limited with special incentives to set up a manufacturing unit for mobile and IT display goods. Samsung will also earn a financial reward of Rs. 460 crores (US$ 62.61 million) under the Central Government’s scheme for the promotion of manufacturing electronic components and semiconductors (SPECS). This project will create a global export hub in Uttar Pradesh and will help the state attract more direct foreign investment (FDI).
In December 2020, the Union Cabinet approved amendments to the Guidelines for the Provision of Direct-to-Home (DTH) Services, allowing 100% FDI in the market for DTH broadcasting services.
In October 2020, the Ministry of Electronics and Information Technology (Meity) accepted 16 qualifying applicants under the Production Linked Incentive (PLI) scheme. The PLI for large-scale electronics manufacturing would extend an incentive of 4-6 per cent for the incremental sales of goods produced in India to the eligible companies for five years following the base year (FY2019-20). The international cell phone manufacturing companies that have been licenced for the mobile phone market are Samsung, Foxconn, Rising Star, Wistron and Pegatron.
Under Magnetic Maharashtra 2.0, core investment promotion recovery initiatives such as Plug & Play Infrastructure, Maha Employment, Maha Parwana, Investor First Program, MIDC Land Banks Capacity Augmentation, and Dedicated Country Desks were introduced by the state. This accelerated economic growth and strengthened consumer sentiment, putting the state as one of the most favoured investment destinations in the world, making the industrial sector of the state flourish.
What lies in the Road ahead of India?
India is expected to highly bank upon the foreign investors in its growth strategies in the short term as well as long term future. According to the CII and the EY report, India is expected to attract foreign direct investment (FDI) of US$ 120-160 billion per year by 2025. The country has seen a 6.8% growth in GDP over the past 10 years, with FDI rising to 1.8% of GDP.