By - Prashant Kataria on October 17, 2022
Foreign Direct Investment in India (FDI), which is a sizable non-debt financial resource for India's domestic economy, is a crucial contributor to economic expansion. To benefit from India's special investment advantages, including tax breaks and relatively low salaries, foreign companies have been known to set up operations and make sizeable investments in India. This in turn helps India expand its technological knowledge and create jobs, among other benefits. These investments have been streaming into India as a result of the government's foreign investment-friendly policy regime, thriving business climate, growing global competitiveness, and financial impact.
FDI regulations have recently been relaxed in several areas, including in public sector enterprises, refineries, communication, and defence, among many other government-sponsored programmes. India received unprecedented levels of FDI in 2020–21. The overall sum of FDI inflows increased by 10% over the previous fiscal year to USD 81,973 million. Based on the World Investment Report 2022, India rose one spot from ninth place in 2019 to eighth place among the top FDI recipients globally in 2020.
FDI plays a multifaceted and well-acknowledged role in economic growth in both industrialised and developing nations and is essential for supporting the integration of international value chains between nations. However, the influx of FDI is just not automatic; it depends on a variety of variables, such as the host country's political stability, market size, competitiveness, and regulatory policies.
India's economy exhibited excellent signs of improvement in FY22 despite the COVID-19 pandemic. When compared to nominal GDP (Gross Domestic Product), which was INR 236.65 lakh crore (USD 2.97 trillion) in FY22, real GDP, was INR 147.36 lakh crore (USD 1.85 trillion), reflecting an 8.7% YoY gain. India has seen a 20-fold increase in FDI inflows from 2000-01 to 2021-22. According to the Department for Promotion of Industry and Internal Trade (DPIIT) , India attracted a total of USD 847.40 billion in FDI between April 2000 and March 2022, primarily as a consequence of the government's initiatives to make doing business simpler and overall simplify the FDI rules.
FDI into India totalled USD 22.03 billion over January and March 2022, whilst FDI equity inflow was USD 15.59 billion over the same time frame. From April 2021 to March 2022, India's computer hardware and software sector has drawn the most FDI equity investment, totalling USD 14.46 billion. The automotive industry came in second with USD 6.99 billion, trading came in third with USD 4.53 billion, and infrastructure projects came in third with USD 3.37 billion.
Singapore has been the largest source for FDI inflow in India at (USD 15.87 billion), followed by the US (USD 10.54 billion), Mauritius (USD 9.39 billion), and the Netherlands (USD 4.62 billion). The state of Karnataka received the greatest foreign direct investment in India (FDI) during this time with USD 22.07 billion, followed by Maharashtra with USD 15.43 billion, Delhi with USD 8.18 billion, Gujarat with USD 2.70 billion, and Haryana with USD 2.79 billion.
India has, over the past years, become a well-liked destination for FDI for a number of reasons. Despite the epidemic, India's economy, which ranked 68 on the Global Competitiveness Index, did pretty well. India was additionally recognised as the 48th most innovative country out of the top 50 countries. These factors have contributed to India receiving increased amounts in FDI. Some of the relevant statistics and recent investments include:
Rapid economic growth: India experienced its largest-ever FDI infusion for the financial year 2021–2022, amounting to USD 83.57 billion . The Hon. PM Shri Narendra Modi unveiled a special economic and holistic package worth over USD 270 billion, which equals 10% of India's GDP, as part of the Atmanirbhar Bharat Abhiyan (Self-reliant India). In 2022, India's GDP is predicted to increase by 6.7%, the fastest rate in the world. In 2021–22, 2022–23, and 2023–24, the real GDP of India is projected to grow by 9%, and 7.1%, respectively. This prediction stated that for the next three years, India's economy would grow at the quickest rate in the entire world.
Large youth population: According to projections, India's population will rise from 121.1 billion to 152.2 billion people between 2011 and 2036, a 25.7% increase. The proportion of young people and adolescents in India is at an all-time high. Its population is going to be one of the youngest in the world by the year 2030.
Indian infrastructure: India’s Minister of Finance, Smt. Nirmala Sitharaman, launched the very first National Infrastructure Pipeline plan to construct first-rate infrastructure. INR 6000 Crores (USD 72.82 trillion) of extra equity have been introduced to the Infrastructure Debt Financing Platform of the National Investment and Infrastructure Fund (NIIF) in order to promote debt and equity investments in infrastructure.
Increased level of competition globally: India climbed from 79th (2014) place to 63rd spot in the Doing Business's 2020 Ease of Doing Business Ranking . Denmark tops the IMD Global Competitiveness Index, with India moving up 6 points to position 37.
2022 global innovation index: India climbs 41 spots in 7 years to claim the 40th spot on the world innovation index. In the area of Central and Southern Asia, India is ranked top. In terms of nations with lower-middle-income economies, India comes in third.
The increasing effect of the economy: It is predicted that the Indian Ocean region will soon replace the Pacific as the hub of world marine trade and by 2030, China and India will dominate the global manufacturing landscape. This is thought to be via the International North-South Transport Corridor, access to Central Asia and Europe (INSTC). Consequently, this should result in India having more economic clout in the Asia-Pacific region over the next five years.
Numerous actions have been made by the Indian government to boost all foreign and domestic investment. The implementation of strategies to increase domestic production through government procurement instructions, the Phased Manufacturing Program (PMP), and initiatives for production-linked incentives (PLI) of various Ministries are among them. Other initiatives include reducing corporate tax rates, resolving NBFC and bank liquidity issues, improving ease of doing business, trying to reform FDI policy, reducing compliance burden, and improving ease of doing business. To promote investment, initiatives like the National Single Window System (NSWS) in its soft initiation phase, the National Infrastructure Pipeline (NIP), the National Monetization Pipeline (NMP), the India Industrial Land Bank (IILB), and others have been established.
India has historically had a labour surplus and a significant lack of productive capital. For India to develop industrially and promote productivity growth, investment flows must be increased and kept consistent. In addition to a growing and more affluent population and improved access to global markets, productive investments will be essential for India's economic progress.
The rate of capital formation continues to be a key factor in determining the trajectory of growth in the economy for a developing country like India. The ability of households to save, a robust and established local market for efficient and effective financial intermediation, and a high degree of capital mobility with the rest of the globe are three elements that contribute to capital accumulation. Domestic investment in India has consistently outpaced domestic savings, and the difference is filled by foreign capital inflows up to a comfortable level of the current account deficit.
Indian consumers make up a sizable portion of the world's consumer market, and they have a high purchasing power. Reports indicate that by 2025, the private consumption segment of the Indian mainstream market will have increased by a ratio of four. India is a mega-economy that is quickly growing, with a skilled labour force and plenty of natural resources.
Foreign funds may be used for investments in stocks, real estate, ownership/management, or joint ventures. Foreign investments are categorised as:
Foreign Direct Investment (FDI)
Foreign Portfolio Investment (FPI)
Foreign Institutional Investment (FII)
The following are the main factors affecting foreign direct investment:
The composition and accessibility of raw materials and resources.
Links for communication and transit.
Labour costs and overall skill levels