Foreign Direct Investment Trend In India

Source: Indian Express
GS III: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Overview

India is rapidly emerging as a preferred country for foreign investments in the manufacturing sector.

Foreign Direct Investment Trend In India by countries are Singapore (27.01%) and the USA (17.94%) have emerged as the top 2 sourcing nations in FDI equity flows into India in FY2021-22
This is followed by Mauritius (15.98%), Netherlands (7.86%) and Switzerland (7.31%).
As per the UNCTAD World Investment Report (WIR) 2022, in its analysis of the global trends in FDI inflows India has improved one position to 7th rank among the top 20 host economies for 2021.
FY 2021-22 FDI has been reported from 101 countries, whereas, it was reported from 97 countries during previous FY 2020-21.
The FDI policy regime continues to welcome all investments in the country subject to compliance of applicable entry conditions and rules/regulations.

Sector-wise

FDI Equity inflow in Manufacturing Sectors have increased by 76% in FY 2021-22 (USD 21.34 billion) compared to previous FY 2020-21 (USD 12.09 billion).
5 sectors receiving highest FDI Equity Inflow during FY 2021-22 are
- Computer Software & Hardware (24.60%)
- Services Sector (Fin., Banking, Insurance, Non Fin/Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis, Other) (12.13%)
- Automobile Industry (11.89%)
- Trading 7.72%
- Construction (Infrastructure) Activities (5.52%).

State-Wise

The top 5 States receiving the highest FDI Equity Inflow during FY 2021-22 are Karnataka (37.55%), Maharashtra (26.26%), Delhi (13.93%), Tamil Nadu (5.10%) and Haryana (4.76%).

Foreign Direct Investment Trend In India, up to 100% is allowed in non-critical sectors through the automatic route, not requiring security clearance from the Ministry of Home Affairs (MHA).
Prior government approval or security clearance from MHA is required for investments in sensitive sectors such as defence, media, telecommunication, satellites, private security agencies, civil aviation and mining, besides any investment from Pakistan and Bangladesh.
All foreign investments must comply with the applicable entry route, sectoral cap, attendant conditions, sectoral laws, Companies Act, 2013 and rules thereunder, pricing guidelines, documentation and reporting requirements.
Government schemes like the production-linked incentive (PLI) scheme in 2020 for electronics manufacturing have been notified to attract foreign investments.
The government’s amendment to the FDI Policy 2017 allows 100 per cent FDI through the automatic route in coal mining operations increasing FDI inflow.
Foreign Investment Facilitation Portal (FIFP) is the Government of India’s online single point of contact with investors to facilitate FDI.
Over the last several years, FDI inflows have been boosted by Make in India and Atmanirbhar Bbharat, which have strengthened India’s position in global supply chains.
India has one of the most liberalised FDI rules in the world, allowing up to 100% FDI through the automatic route.

Exemption of incremental Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident (External) Rupee (NRE) deposits from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR),
Permission to banks to raise fresh FCNR(B) and NRE deposits without reference to the extant regulations on interest rates until end-October 2022.
Inclusion of all new issuances of G-Secs of 7-year and 14-year tenors under the Fully Accessible Route (FAR) for FPls.
Exemption of investments by FPls in G-Secs and corporate debt made till October 31, 2022, from the short-term limit.
They are allowing FPI in commercial paper and non-convertible debentures with an original maturity of up to one year.
Temporary increase in the limit for external commercial borrowings (ECBs) under the automatic route from US$ 750 million or its equivalent per financial year to US$ 1.5 billion.
Increase in the all-in cost ceiling under the ECB framework by 100 basis points, subject to the borrower being of investment grade rating.
Permission to AD Cat-I banks to utilise overseas foreign currency borrowings for lending in foreign currency to entities for a wider set of end-use purposes, besides exports.

Points to be noted about FDI?

FDI: Investment made by a firm or individual in one country into business interests in another.
FDI has been a major non-debt financial resource for the economic development of India.

How does FDI flow impact?

FDI- increase will boost quality standards and technology transfer, along with enhanced employment opportunities.
Brings in financial resources for economic development.
Brings in a more competitive business environment in the country.

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