Last updated: Oct, 2021
About FDI in India
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.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 547.2 billion between April 2000 and June 2021, indicating that the government's efforts to improve ease of doing business and relaxing FDI norms have yield results.
FDI equity inflow in India stood at US$ 17.56 billion between April 2021 and June 2021. Data between April 2021 and June 2021 indicates that the automobile sector attracted the highest FDI equity inflow of US$ 4.66 billion, followed by computer software & hardware sector (US$ 3.06 billion), services sector (US$ 1.89 billion) and metallurgical industries (US$ 1.26 billion).
Between April 2021 and June 2021, India recorded the highest FDI equity inflow from Singapore (US$ 3.31 billion), followed by Mauritius (US$ 3.29 billion), the US (US$ 1.95 billion), Cayman Islands (US$ 1.32 billion), the Netherlands (US$ 1.09 billion), Japan (US$ 539 million) and the UK (US$ 345 million).
In the same period, Karnataka registered the highest FDI equity inflow of US$ 8.45 billion, followed by Maharashtra (US$ 4.09 billion), Delhi (US$ 1.95 billion) and Gujarat (US$ 765 million).
Some of the significant FDI announcements made recently are as follows:
In September 2021, India and the UK agreed for an investment boost to strengthen bilateral ties for an ‘Enhanced Trade Partnership’.
In June 2021, the Finance Ministers of G-7 countries including the US, the UK, Japan, Italy, Germany, France and Canada attained a historic contract on taxing multinational firms; under this, the minimum global tax rate would be at least 15%. The move is expected to further boost foreign direct investments in the country.
In September 2021, the Union Cabinet announced to allow 100% foreign direct investment (FDI) via the automatic route, from the previous 49% in the telecom sector in India, to boost the sector.
In August 2021, the government amended the Foreign Exchange Management (non-debt instruments) Rules, 2019, to allow the 74% increase in foreign direct investment limit in the insurance sector.
In May 2021, the Finance Ministry notified the final rules for foreign investment limit (74%) in the insurance sector. This is expected to benefit 23 private life insurers, 21 private non-life insurers and seven specialised private health insurance firms.
In March 2021, Mr. Shripad Naik, the Minister of State for Defence, stated that a total of 44 Indian companies, including public sector units, have received approvals related to FDI for joint production of defence items with foreign organisations.
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.
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.
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 ranked43rd on the Institute for Management Development (IMD)’s 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.
Note: Conversion rate used for September 2021 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)