Apart from being a critical driver of economic growth, Foreign Direct Investment (FDI) has been a major non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of the relatively lower wages, special investment privileges like tax exemptions, etc. When foreign investment is being made in India, it also helps the country achieve technical know-how and generate employment.
The Indian Government’s favourable policy regime and robust business environment has ensured that foreign capital keeps flowing into the country. The Government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 572.81 billion between April 2000-December 2021, indicating that the government's efforts to improve ease of doing business and relaxing FDI norms have yielded results.
Total FDI inflow into India in the third quarter of FY22 stood at US$ 17.93 billion, while the FDI equity inflow for the same period stood at US$ 12.02 billion.
Data between April-December 2021 indicates that the computer software and hardware industry attracted the highest FDI equity inflow of US$ 10.25 billion, followed by the automobile sector at US$ 5.96 billion, services sector at US$ 5.35 billion, trading sector at US$ 2.99 billion, construction activities at US$ 1.59 billion, and drugs and pharmaceuticals at US$ 1.21 billion.
Between April-December 2021, India recorded the highest FDI equity inflow from Singapore (US$ 11.69 billion), followed by the US (US$ 7.52 billion), Mauritius (US$ 6.58 billion), the Cayman Islands (US$ 2.74 billion), the Netherlands (US$ 2.66 billion), and the UK (US$ 1.44 billion).
In the same period, Karnataka registered the highest FDI equity inflow of US$ 17.25 billion, followed by Maharashtra (US$ 9.69 billion), Delhi (US$ 6.39 billion), Tamil Nadu (US$ 2.38 billion), Gujarat (US$ 2.06 billion), and Haryana (US$ 2.03 billion).
During the third quarter of FY22, foreign owned assets in India stood at US$ 926.2 billion, up from US$ 852.4 billion in the third quarter of FY21.
Some of the recent investments and developments in the FDI space are as follows:
The government has taken plenty of initiatives to attract FDI in India:
India is expected to attract FDI worth US$ 120-160 billion per year by 2025, according to a CII and EY report.
In terms of attractiveness, investors ranked India #3; ~80% investors have plans to invest in India in the next 2-3 years, while ~25% reported investments worth more than US$ 500 million, the Economic Times reported.
Further, as per a Deloitte report published in September 2021, India remains an attractive market for international investors both in terms of short-term and long-term prospects.
India ranked 43rd on the Institute for Management Development’s (IMD) annual World Competitiveness Index 2021. According to the IMD, India's developments in government efficiency are primarily due to relatively stable public finances (despite COVID-19-induced challenges), and optimistic sentiments among Indian business stakeholders with respect to the funding, and subsidies offered by the government to private firms.