Increased FDI in India

In News

Recently, the Ministry of Commerce and Industry has highlighted the growth of the Foreign Direct Investment (FDI) flows into India.

Key Highlights

• FDI grew 10 per cent in 2020-21 and touched a record USD 81.72 billion.
  • In 2019-20, India had received USD 74.39 billion in FDI.
• FDI equity inflows rose 19 per cent to almost USD 60 billion.
  • In 2019-20, India saw almost USD 50 billion coming in the form of equity investments.
• Top FDI Investors
  • Singapore emerged as the top investor with 29 per cent investments.
  • It was followed by the US which accounted for 23 per cent of FDI.
  • Mauritius accounted for 9 per cent of the foreign capital flows.
  • Trends
    • FDI equity flows from the US more than doubled in 2020-21 compared with 2019-20.
    • Investments from the UK surged 44 per cent in the same period.
    • However, the sharpest growth among the top 10 FDI-origin countries was recorded from Saudi Arabia as the investments jumped from a mere USD 90 million in 2019-20 to USD 2.8 billion in 2020-21.
• Top FDI Destinations
  • Gujarat was the top FDI destination, accounting for 37 per cent of the foreign equity inflows.
  • It was followed by its traditional industrial rival Maharashtra which got 27 per cent of the equity inflows.
  • Karnataka accounted for 13 per cent (third-highest) of the equity investments.
  • Rest of the country got less than the remaining 23 per cent of foreign equity capital.
• Top Sectors
  • Computer software and hardware has emerged as the top sector during 2020-21 with about 44 per cent share of the total FDI equity inflow.
  • It is followed by Construction (infrastructure) activities (13 per cent) and Services sector (8 per cent).
    • As much as 94 per cent of the equity FDI into Gujarat was routed into the computer software and hardware sector, with the State accounting for 78 percent of the total investments into the sector.
    • Karnataka, with 9 percent of FDI equity receipts into the sector, was followed by Delhi which received 5 per cent.
  • Apart from the computer software and hardware and construction activities, rubber goods, retail trading, drugs and pharmaceuticals and electrical equipment recorded more than 100 per cent jump in equity during 2020-21.
• Reasons
  • The boost in FDI inflow comes in the backdrop of a series of policy steps taken to improve ease of doing business and to attract investments into domestic manufacturing capacity and an ambitious infrastructure project pipeline.
  • Also, the investments recorded a positive growth in double digits boosted by investments in the digital sector.

Forign Direct Investment

• It refers to the conditions when a company or investor takes ownership and controls operation in a business entity in another country.
• With FDI, foreign companies are directly involved with day-to-day operations in the other country which implies that along with bringing money, they also bring knowledge, skills and technology.
• It is an important non-debt monetary source for India’s economic development.
  • Economic liberalisation started in India in the wake of the 1991 crisis and since then, FDI has steadily increased in the country.
• FDI Routes
  • Government Route: For investment in business sectors requiring prior approval from the Foreign Investment Promotion Board (FIPB).
  • Automatic Route: For investment in business sectors that do not require prior approval from the government.
• Categories
  • Horizontal: It refers to the investor establishing the same type of business operation in a foreign country as it operates in its home country.
  • Vertical: It is the one in which different but related business activities from the investor’s main business are established or acquired in a foreign country, such as when a manufacturing company acquires an interest in a foreign company that supplies parts or raw materials required for the manufacturing company.
  • Conglomerate: It is one where a company or individual makes foreign investment in a business that is unrelated to its existing business in its home country.
• In January 2021, a report by the United Nations Conference on Trade and Development (UNCTAD) highlighted that in 2020, developing nations accounted for 72 per cent of global FDI, the highest share on record.
  • China was the world’s largest FDI recipient in 2020, with flows rising 4 per cent to USD 163 billion.
    • High-tech industries saw an increase of 11 per cent in 2020 and cross-border mergers and acquisitions rose by 54 per cent, mostly in Information and Communication Technology (ICT) and pharmaceutical industries.
  • India recorded positive growth of 13 per cent, boosted by investments in the digital sector.

(Image Courtesy: UNCTAD)

Government Initiatives to Boost FDI

• The Government of India aims to achieve USD 100 billion worth of FDI inflows in the following two years, making India the top recipient of greenfield FDI Inflows in the world.
• Proposal to commence the auctioning of 5G spectrum.
• National E-Commerce Policy (draft) to encourage FDI in the marketplace model of e-commerce to ensure a level playing field for all participants.
• Revised FDI rules to e-commerce allowing 100 per cent FDI in the marketplace-based model of e-commerce.
• Launch of National Digital Communications Policy, 2018 with a target of increasing FDI inflows in the telecommunications sector to USD 100 billion by 2022.
• Removal of the need for government approval for FDI up to an extent of 100 per cent in Real Estate Broking Services.
• Strengthening the single-window clearance system for fast-tracking approval processes for Japanese investors in India.
• Doing away with the approval of the Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application.
• The Government introduced a Production Linked Incentive (PLI) schemes for the various sectors gives large impetus to the FDI inflow

Source: TH