By - Sreedevi Pillai on July 19, 2023
In the fiscal year 2021-22, India witnessed a record high of US$ 83.57 billion in foreign direct investment (FDI) inflows. Over the past seven fiscal years (2014-2021), FDI inflows amounted to US$ 440.27 billion, which accounts for approximately 58% of the total FDI inflows of US$ 763.83 billion during the past 21 fiscal years (2000-2021).
The top five countries contributing to FDI equity inflows between April 2014 and August 2021 were Singapore (28%), Mauritius (22%), the United States (10%), the Netherlands (8%), and Japan (6%). In terms of sectors, the computer software and hardware industry attracted the largest share of FDI inflows at 19% during the same period, followed by the service sector (15%), trading (8%), and telecommunications and construction (infrastructure) (7% each).
India has implemented several strategies to attract foreign investments, including measures like reducing corporate tax rates, addressing liquidity issues in non-banking financial companies (NBFCs) and banks, enhancing the ease of doing business, and implementing reforms in the FDI policy. The government has also taken steps to reduce the compliance burden and promote domestic manufacturing through initiatives such as Public Procurement Orders, Phased Manufacturing Programme (PMP), and Production Linked Incentive (PLI) schemes across various ministries.
To further encourage investment, policies like India Industrial Land Bank (IILB), Industrial Park Rating System (IPRS), National Single Window System (NSWS), National Infrastructure Pipeline (NIP), and National Monetization Pipeline (NMP) have been introduced.[1]
One of the primary game-changers in attracting more investments from foreign nations has been the budgetary measures implemented over the years. These initiatives, aimed at improving the ease of doing business, have been instrumental in attracting more FDI, including those from the United States. Several changes have been introduced to foster a favorable investment climate and encourage greater FDI, such as:
India has witnessed a surge in its attractiveness as a destination for foreign direct investment (FDI) due to the implementation of favorable government policies. The country has introduced a range of schemes and policies that have significantly bolstered its FDI, with particular emphasis on emerging sectors like defense manufacturing, real estate, and research and development. Notable government initiatives in this regard include:[2]:
1. Pharmaceutical Industry
To safeguard India's prominent position in the pharmaceutical industry, the Government of India has implemented the following initiatives in response to the COVID-19 pandemic:
2. Medical Devices
The COVID-19 pandemic has brought about unprecedented shifts in the pace of operations within the medical devices industry. In India, this industry encompasses major multinational companies with extensive service networks, along with small and medium enterprises (SMEs). The current market size of the medical devices industry in India is estimated to be $11 bn.To propel further growth within this sector, the Government of India has undertaken the following initiatives:
To establish India as a global hub for Electronics System Design and Manufacturing (ESDM) and advance the goals outlined in the National Policy on Electronics (NPE) 2019, the Ministry of Electronics and Information Technology (MEITY) has introduced three schemes. These schemes, namely the Production Linked Incentive Scheme (PLI), Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), and Modified Electronics Manufacturing Clusters Scheme (EMC 2.0), were notified by the MEITY in April 2020.
3. Production Linked Incentive Scheme (PLI)
The Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing aims to provide a financial incentive to attract significant investments in the electronics value chain, including mobile phones, electronic components, and ATMP units, from foreign investors. The scheme provides support to food manufacturing entities that fulfill the specified minimum sales criteria and are ready to make the required minimum investment for expanding their processing capacity and promoting their brands internationally. The government has set a target of granting Production Linked Incentives amounting to INR 40,951 crores over a span of five years..[5]
4. Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS)
The objective of the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) is to enhance the manufacturing ecosystem for electronic components and semiconductors. This scheme aims to encourage the production of electronic components and semiconductors to meet domestic demand and create employment opportunities in this sector. Under this scheme, incentives totaling up to INR 3,285 crore will be provided over a duration of 8 years..[6]
The Reserve Bank of India (RBI) has implemented several measures to enhance foreign exchange (forex) inflows. These measures comprise:
Promoting and attracting foreign Investment in India is crucial for the country's economic progress and advancement. India has successfully implemented various schemes and policies to create a favorable investment climate. These initiatives have effectively enticed foreign investors and fostered a conducive business environment. In recent times, India has emerged as a significant global destination for FDI, with a high level of interest from international investors.
Corporate tax reductions and simplified labor laws have further enhanced India's appeal. FDI restrictions have also been significantly reduced over the years. India's potential as an attractive market for both short-term and long-term investments remains strong. The low-skill manufacturing sector is particularly promising for FDI.
These factors combined could result in FDI inflows of US$ 120-160 billion annually by 2025. Initiatives, like Make in India, Startup India, Digital India, and GST, have yielded positive outcomes, boosting competitiveness, economic growth, and employment opportunities. However, sustaining and further increasing foreign investment requires the government's ongoing commitment to reforms, promoting stability, and addressing any remaining challenges. By doing so, India can continue its trajectory as a global investment destination, leading to long-term economic prosperity.
[1]https://pib.gov.in/PressReleasePage.aspx?PRID=1782353
[2]https://www.ibef.org/economy/foreign-direct-investment
[3]https://www.ibef.org/economy/foreign-direct-investment#:~:text=The%20government%20has%20recently%20made,over%20the%20previous%20financial%20year
[4]https://pib.gov.in/newsite/PrintRelease.aspx?relid=199758
[5]https://www.meity.gov.in/esdm/pli
[6]https://www.meity.gov.in/esdm/SPECS
[7]https://pib.gov.in/PressReleasePage.aspx?PRID=1846088
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