Foreign Direct Investment

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Last updated: Apr, 2015


Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of cheaper wages, special investment privileges like tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generation of employment.

The continuous inflow of FDI in India, which is now allowed across several industries, clearly shows the faith that overseas investors have in the country's economy.

The Indian government’s policy regime and a robust business environment have ensured that foreign capital keep flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defense, PSU oil refineries, telecom, power exchanges and stock exchanges, among others.

Market size

FDI into India through the approval route shot up 162 per cent to US$ 1.91 billion in the first ten months of the ongoing fiscal year, indicating that government's effort to improve ease of doing business and relaxation in FDI norms may be yielding results.

FDI to India doubled to US$ 4.48 billion in January 2015, the highest inflow in last 29 months, from US$ 2.18 billion in January 2014.

The foreign inflows have grown to touch US$ 25.52 billion during the April-January 2014-15, up 36 per cent year-on-year (y-o-y), from US$ 18.74 billion in the corresponding period last fiscal, according to Department of Industrial Policy and Promotion (DIPP) data. The top 10 sectors receiving FDI include telecommunication which received the maximum FDI worth US$ 2.83 billion in the 10 month period, followed by services (US$ 2.64 billion), automobiles (US$ 2.04 billion), computer software and hardware (US$ 1.30 billion) and pharmaceuticals sector (US$ 1.25 billion).

India received the maximum FDI from Mauritius at US$ 7.66 billion, followed by Singapore (US$ 5.26 billion), the Netherlands (US$ 3.13 billion), Japan (US$ 1.61 billion) and the US (US$ 1.58 billion) during April-January 2014-15 period. Healthy inflow of foreign investments into the country helped India’s balance of payments (BoP) situation and stabilised the value of rupee.

Also, deals worth US$ 3.4 billion across 118 transactions were struck in January in India, compared with US$ 1.6 billion across 87 transactions in January last year and US$ 1.2 billion across 74 deals in the same month a year before that, according to a Grant Thornton report on merger and acquisition (M&A) and private equity (PE) activity.

Inbound deals have more than tripled in value, led by the Herman-Symphony transaction worth US$ 780 million and three other deals worth more than US$ 100 million each.


Based on the recommendations of Foreign Investment Promotion Board (FIPB) in its meeting held on February 17, 2015, the Government has approved ten proposals of FDI amounting to Rs. 2,857.83 crore (US$ 452.72 million) approximately.

  • Bengaluru-based business process outsourcing (BPO) firm Hinduja Global Solutions Ltd (HGS) has announced that it has acquired a majority stake in Colibrium Partners LLC and Colibrium Direct LLC. The acquisition has been made by HGS Colibrium Inc, a US subsidiary of HGS, which would own 89.9 per cent of Colibrium, a wellness automation technology firm.
  • Insurance Australia Group Ltd (IAG) is set to raise its stake in its general insurance joint venture with the State Bank of India (SBI) from 26 per cent to 49 per cent, in the first such instance after Parliament cleared a bill on March 12 that raised the maximum permitted foreign stake in insurance sector.
  • The Maharashtra government has signed a memorandum of understanding (MoU) with the Swedish furniture retailing giant, IKEA, to set up two to three stores, with an estimated investment of around Rs 1,800 crore (US$ 285.14 million). Maharashtra is one of four states, including Telangana, Karnataka and Delhi-National Capital Region (NCR), identified by IKEA to open its stores.
  • Lowe's Services India Private Limited, a subsidiary of Lowe's Companies, has opened its global innovation center (GIC) in Bengaluru, India. The GIC will focus on next-generation customer experience by laying emphasis on technology and analytics to provide customers with a more personalized shopping experience.
  • ThyssenKrupp Aerospace, part of ThyssenKrupp AG, the Garmany-based conglomerate, and supplier of aerospace materials and logistics, has announced its foray into the Indian aerospace market with the setting up of a facility in Bengaluru. So far the company has invested around Rs 25 crore (US$ 3.96 million) in the facility, which employs around 30 people
  • European aircraft major Airbus, which had sourced more than $400 million worth of components from India in the past year, has signed an agreement with Bengaluru-based Dynamatic Technologies for supply of flap-track beams for its A-330 wide-body planes
  • India has received proposals worth Rs 21,000 crore (US$ 3.32 billion) from companies under the Union government’s Make in India programme. Of this, Rs 6,000 crore (US$ 950.61 million) of proposals have already been cleared.
  • Twitter Inc is planning to set up a research and design (R&D) centre in Bengaluru to grow faster in emerging markets. This will be the San Francisco-based company’s first such facility outside the US.
  • Keiretsu Forum, a global angel investor network with 1,400 accredited members, has forayed into India by opening a chapter in Chennai.
  • CDC, the UK’s development finance institution, has invested US$ 48 million in Narayana Hrudayalaya hospitals, a multi-speciality healthcare provider. CDC will receive a small minority stake in return for its investment.

Government Initiatives

The Government has amended the FDI policy regarding Construction Development Sector. The amended policy includes easing of area restriction norms, reduction of minimum capitalisation and easy exit from project. Further, in order to give boost to low cost affordable housing, it has been provided that conditions of area restriction and minimum capitalisation will not apply to cases committing 30 per cent of the project cost towards affordable housing.

Relaxation of FDI norms are expected to result in enhanced inflows into the Construction Development sector consequent to easing of sectoral conditions and clarification of terms used in the Policy. It is likely to attract investments in new areas and encourage development of plots for serviced housing given the shortage of land in and around urban agglomerations as well as the high cost of land. The measure is also expected to result in creation of much needed low cost affordable housing in the country and development of smart cities.

The government has also raised FDI cap in insurance to 49 per cent from 26 per cent through a notification issued by the DIPP. The limit is composite in nature as it includes foreign investment in forms of foreign portfolio investment, foreign institutional investment, qualified foreign investment, foreign venture capital investment and non-resident investment.

Also, India’s cabinet has cleared a proposal which allows 100 per cent FDI in railway infrastructure, excluding operations. Though the initiative does not allow foreign firms to operate trains, it allows them to do other things such as create the network and supply trains for bullet trains etc.

Road Ahead

Foreign investment inflows are expected to increase by more than two times and cross the US$ 60 billion mark in FY15 as foreign investors start gaining confidence in India’s new government, as per an industry study. "Riding on huge expectations from the incoming Modi government, global investors are gung ho on the Indian economy which is expected to witness over 100 per cent increase in foreign investment inflows – both FDI and FIIs – to above US$ 60 billion in the current financial year, as against US$ 29 billion during 2013-14," according to the study.

India will require around US $1 trillion in the 12th Five-Year Plan (2012–17), to fund infrastructure growth covering sectors such as highways, ports and airways. This requires support in terms of FDI. The year 2013 saw foreign investment pour into sectors such as automobiles, computer software and hardware, construction development, power, services, and telecommunications, among others.

Exchange Rate Used: INR 1 = US$ 0.0157 as on April 28, 2015

References: Media Reports, Press Releases, Press Information Bureau

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