Due to initiatives like the implementation of production-linked incentive (PLI) schemes and projections of robust economic growth, India may continue to draw the attention of foreign investors in 2023. However, there may still be global economic uncertainties as a result of the ongoing Russia-Ukraine war and US monetary policy tightening.
Efforts to promote ease of doing business, skilled labour, the availability of natural resources, liberal FDI policies, a sizable domestic market, and expectations of healthy GDP growth are reasons for optimism on the foreign inflows front for India in 2023, but problems like the delay in contract enforcement, onerous procedures, and high-interest rates are still a sore point.
The recovery of Greenfield investment in the industry is still shaky, especially in emerging nations, according to UNCTAD’s most recent world investment report, 2022. Additionally, it has been said that the effects of the conflict in Ukraine, including the triple crises in food, fuel, and money, as well as the ongoing COVID-19 epidemic and the effects of climate change, are increasing stress, especially in poor nations.
In 2022, India has so far attracted a sizable amount of FDI. According to the most recent official statistics, India attracted foreign investments totaling USD 42.5 billion between January and September 2022. In 2021, it was $51.3 billion USD. Inflows of FDI into the nation reached an all-time high of USD 84.84 billion in 2021–22.
FDI equity inflows into India, on the other hand, decreased by 14% to USD 26.9 billion from April to September of the current fiscal year. The total amount of FDI inflows, which also includes equity investments, reinvested earnings, and other capital, has decreased as well, falling to USD 39 billion in the first half of this fiscal year from USD 42.86 billion in the same period last year.
Anurag Jain, secretary of the Department for the Promotion of Industry and Internal Trade (DPIIT), stated that a number of initiatives, including the liberalization of the FDI policy, steps to promote further ease of doing business, lowering the burden of compliance on the industry, the implementation of the PLI schemes, and the PM GatiShakti National Master Plan for integrated infrastructure development, have made India the preferred investment destination.
A new record FDI influx into the nation has been set for the last eight years. However, given the difficulties of slow economic development and geopolitical reality, there will inevitably be difficulties in the future. Several international companies are trying to move their production bases to India, he continued, and players from all over the world are eager to take advantage of the PLI initiatives.
According to Jain, the National Single Window System (NSWS) portal’s development is fundamentally altering how companies now seek approvals and will also make it easier for investors to enter India. He also noted that free trade agreements with the UAE and Australia will also help India attract a healthy amount of FDI inflows in 2022–2023.
With a budget of Rs. 1.97 lakh crore, the PLI programme was established for 14 industries, including white goods, telecom, and auto components, in order to increase India’s manufacturing capacity and exports. 13 areas have so far approved 650 applications. For 2022–2023, the RBI predicted a growth rate of 6.8%. Experts have also expressed optimism that the government’s reform initiatives will aid India in attracting significant FDI inflows in 2023. In the future, the nation’s comparatively stronger performance and robust growth potential would help it stand out as an investment destination, according to Rumki Majumdar, an economist at Deloitte India.
She said that while US FDI has ceased, stock inflows from Japan, Singapore, the UK, and the UAE have increased significantly in the first half of 2022–2023. This demonstrates that foreign investors are getting more confident about making investments in India and that those inflows are diversifying, she said. Induslaw Senior and Founding Partner Kartik Ganapathy agreed, stating that India’s growth looks to be fueled by a rise in domestic consumption, the expansion of services and the digital economy, and more infrastructure investment.
In order to control inflation, the US central bank has raised its benchmark lending rate multiple times and has threatened more increases. Worldwide supply lines are being disrupted by the ongoing Russia-Ukraine conflict, which puts further strain on the world economy. Between April 2000 and September 2022, FDI into India totaled USD 887.76 billion.
A little over 26% of FDI passed via Mauritius. Singapore (23%) came in second, followed by the US (9%), the Netherlands (7%), Japan (6%) and the UK (5 per cent). UAE, Germany, Cyprus, and Cayman Islands each contributed 2%. Services, computer software and hardware, telecommunications, trade, construction development, automotive, chemicals, and pharmaceuticals are the primary industries that received the most foreign direct investment.
Although FDI is permitted through the automatic route in the majority of sectors, authorisation from the government is necessary for foreign investors in several industries, including telecom, media, pharmaceuticals, and insurance. In contrast to the automatic method, which only requires an overseas investor to notify the Reserve Bank of India (RBI) after the investment is made, the government approval route requires a foreign investor to have prior clearance from the relevant ministry or department.
FDI is now restricted to nine different industries, including those that manufacture cigars, cheroots, cigarillos, and cigarettes using tobacco, as well as lottery, gambling and betting, chit funds, companies, real estate businesses, and commercial dealings. FDI is crucial because India will need to make significant investments in the upcoming years to revamp its infrastructure sector and spur growth. The balance of payments and the value of the rupee are maintained with the aid of a healthy rise in foreign inflows.
To promote infrastructure development and employment growth, India should relax its FDI regulations.
Over the years, the Indian government has made significant changes to the FDI policy in a variety of industries, including defence, construction development, insurance, pensions, broadcasting, tea, coffee, rubber, cardamom, palm oil tree, and olive oil tree plantations; single brand retail trading; manufacturing; limited liability partnerships; civil aviation; credit information companies satellites establishment/operation; and asset reconstruction firms.
The government has recently further liberalised and simplified the FDI regime, particularly for food products, the defence sector, broadcasting carriage services, pharmaceutical, civil aviation, private security agencies, the establishment of branch offices, liaison offices, or project offices, animal husbandry, and single brand retailing, keeping in mind our economy’s potential to attract much more foreign investment.
Recent FDI laws that have been loosened have made it easier to invite foreign investments, saving time and energy for investors. India will become a more open economy in the global economic system as a result of the increase in sectoral caps, the addition of new activities to the automatic route, and the easing of conditions for foreign investment. The Make-in-India initiative will gain momentum thanks to the FDI policy announcements, which place a strong focus on encouraging both international and indigenous investments.
Large-scale foreign investment opportunities in the most promising economic areas will also improve the local investment climate. Additionally, millions of our nation’s children will profit when lucrative jobs or business possibilities are generated in the near future. For an economy to expand faster, foreign direct investments are essential. Following the economic reforms of 1991, India’s regulatory environment for foreign direct investments has been gradually loosened to attract more investors and to augment native resources like cash, technology, and talent.
Recent FDI policy announcements in a variety of economic sectors are anticipated to draw substantial investments, provide new employment opportunities, and support the Make-in-India initiative. India will become a more open economy in the global economy by raising sectoral ceilings, adding additional activities to the automated route, and removing restrictions on foreign investment. In the future years, the government’s proactive reform-focused initiatives, notably those for loosening FDI regulations in a number of economic sectors, will encourage job creation, youth empowerment, and an increase in overall economic development. In conclusion, India has only recently started to draw in foreign investment.
Given the size of the economy and its perceived high growth potential, it will likely continue to be a popular choice for investors so long as policy toward investment in general and FDI, in particular, is perceived to be supportive. To continue increasing India’s appeal for Make in India, the government must speed up reforms.
Edited by Prakriti Arora