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Foreign Direct Investment (FDI)

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Last updated: Apr, 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 the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 521.47 billion between April 2000 and December 2020, indicating that the government's efforts to improve ease of doing business and relaxing FDI norms have yield results.

FDI equity inflows in India stood at US$ 51.47 billion in 2020-21 (between April 2020 and December 2020). Data for 2020-21 indicates that the computer software and hardware sector attracted the highest FDI equity inflows of US$ 24.39 billion, followed by the construction (infrastructure) activities (US$ 7.15 billion), service sector (US$ 3.86 billion) and trading (US$ 2.14 billion).

In 2020-21 (between April 2020 and December 2020), India received the highest FDI equity inflows from Singapore (US$ 15.72 billion), followed by the US (US$ 12.83 billion), the UAE (US$ 3.92 billion), Mauritius (US$ 3.48 billion), Cayman Islands (US$ 2.53 billion), the Netherlands (US$ 2.44 billion) and the UK (US$ 1.83 billion).

In 2020-21 (between April 2020 and December 2020), Gujarat received the highest FDI equity inflows of US$ 21.24 billion, followed by Maharashtra (US$ 13.64 billion), Karnataka (US$ 6.37 billion) and Delhi (US$ 4.22 billion).

Investments/ Developments

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

  • In the first nine months of FY21, total FDI inflows amounted to US$ 67.54 billion, a  22% YoY increase.
  • In February 2021, Amazon announced to start manufacturing electronic devices in India from 2021
  • In January 2021, Amazon partnered with Startup India, Sequoia Capital India and Fireside Ventures to launch an accelerator programme to support early-stage start-ups take their brands to international markets and boost domestic exports.
  • 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 the Reserve Bank of India (RBI), India’s Outward Foreign Direct Investments (OFDIs) in equity, loan and guaranteed issue stood at ~US$ 1.85 billion in February 2021 vs. US$ 1.19 billion in January 2021.

Government Initiatives

In March 2021, the parliament approved a bill to increase foreign direct investment (FDI) in the insurance sector from 49% to 74%.

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.

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 March 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)

https://dipp.gov.in/sites/default/files/FDI Factsheet December 20.pdf