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Foreign Direct Investment (FDI)

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Last updated: Jan, 2021

About FDI in India

Introduction

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 relatively lower wages, special investment privileges like tax exemptions, etc. For a country where foreign investment is being made, it also means achieving technical know-how and generating 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.

Market size

According to Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 500.12 billion between April 2000 and September 2020, indicating that Government's effort to improve ease of doing business and relaxing FDI norms has yield results.

FDI equity inflows in India stood at US$ 30.0 billion in 2020-21 (between April 2020 and September 2020). Data for 2020-21 indicates that computer software and hardware sector attracted the highest FDI equity inflows of US$ 17.55 billion, followed by the service sector at US$ 2.25 billion, trading at US$ 949 million and chemicals (other than fertilisers) at US$ 437 million.

In 2020-21 (between April 2020 and September 2020), India received the maximum FDI equity inflows from Singapore (US$ 8.30 billion), followed by the US (US$ 7.12 billion), Cayman Islands (US$ 2.10 billion), Mauritius (US$ 2.0 billion), the Netherlands (US$ 1.49 billion) and the UK (US$ 1.35 billion).

In 2020-21 (between April 2020 and September 2020), Gujarat received the maximum FDI equity inflows of US$ 16.0 billion, followed by Maharashtra at US$ 3.61 billion, Karnataka at US$ 3.66 billion and Delhi at US$ 2.66 billion.

Investments/ Developments

Some of the significant FDI announcements made recently are as follows:

  • In the second quarter of FY21, total FDI inflows amounted to US$ 28.10 billion, of which equity inflows were US$ 23.44 billion. This boosted FDI equity inflows to US$ 30 billion between April 2020 and September 2020, a 15% increase on y-o-y basis compared with the same period in FY20.
  • In November 2020, Rs. 2,480 crore (US$ 337.53 million) foreign direct investment (FDI) in ATC Telecom Infra Pvt Ltd. was approved by the Union Cabinet.
  • In November 2020, Amazon Web Services (AWS) announced to invest US$ 2.77 billion (Rs. 20,761 crore) in Telangana to set up multiple data centres; this is the largest FDI in the history of the state.
  • Since April 2020, the government has received over 120 foreign direct investment (FDI) proposals worth ~Rs. 12,000 crore (US$ 1.63 billion) from China. Between April 2000 and September 2020, India received US$ 2.43 billion FDI from China.
  • According to data provided by Reserve Bank of India (RBI), India’s Outward Foreign Direct Investment (OFDI) in equity, loan and guaranteed issue stood at ~US$ 1.06 billion in November 2020 vs. US$ 3.51 billion in October 2020.

Government Initiatives

In December 2020, the government of Uttar Pradesh agreed to provide Samsung Display Noida Private Limited with special incentives to set up a mobile and IT display product manufacturing unit. Under the Central Government's scheme for promotion of manufacturing electronic components and semiconductors (SPECS), Samsung will also receive a financial incentive of Rs. 460 crore (US$ 62.61 million). This project will develop a global export hub in Uttar Pradesh and will help the state attract more foreign direct investments (FDI).

In December 2020, changes in the guidelines for the provision of Direct-to-Home (DTH) services have been approved by the Union Cabinet, enabling 100% FDI in the DTH broadcasting services market.

In October 2020, 16 qualifying applicants under the PLI scheme were approved by the Ministry of Electronics and Information Technology (MeitY). For five years, subsequent to the base year (FY2019-20), the PLI for large-scale electronics production will extend an incentive of 4-6% on the incremental sales of products manufactured in India to the qualifying firms. Samsung, Foxconn, Rising Star, Wistron and Pegatron are the foreign mobile phone manufacturing companies that have been approved in the mobile phone market.

Under Magnetic Maharashtra 2.0, the state implemented core investment promotion recovery initiatives such as Plug & Play Infrastructure, Maha Jobs, Maha Parwana, Investor First Programme, Capacity Augmentation of MIDC Land Banks and Dedicated Country Desks. This accelerated the economic growth and improved consumer trust, placing the state as one of the country's most preferred investment destinations, flourishing the state's industrial sector.

Road ahead

India is expected to attract foreign direct investments (FDI) of US$ 120-160 billion per year by 2025, according to CII and EY report. Over the past 10 years, the country witnessed a 6.8% rise in GDP with FDI increasing to GDP at 1.8%.

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 >US$ 500 million, the Economic Times reported.

Note: Conversion rate used for December 2020 is Rs. 1 = US$ 0.014

References: Media Reports, Press Releases, Press Information Bureau, Press Trust of India, RBI, Department for Promotion of Industry and Internal Trade (DPIIT)

https://dipp.gov.in/sites/default/files/FDI_Fact_sheet_September_20.pdf