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FDI inflows into India have crossed the USD one trillion milestone in the April 2000-September 2024 period
FDI is important for India as it will require huge investments in the coming years for the infrastructure sector to boost growth (Representative image)
Foreign direct investment (FDI) inflows into India have crossed the USD one trillion milestone in the April 2000-September 2024 period, firmly establishing the country’s reputation as a safe and key investment destination globally.
Cumulative FDI Inflows: Key Data
According to data from the Department for Promotion of Industry and Internal Trade (DPIIT), the cumulative amount of FDI, including equity, reinvested earnings and other capital, stood at USD 1,033.40 billion during the said period.
Major FDI Sources
About 25 per cent of the FDI came through the Mauritius route. It was followed by Singapore (24 per cent), the US (10 per cent), the Netherlands (7 per cent), Japan (6 per cent), the UK (5 per cent), UAE (3 per cent) and Cayman Islands, Germany and Cyprus accounted for 2 per cent each.
Top FDI Contributors
India received USD 177.18 billion from Mauritius, USD 167.47 billion from Singapore and USD 67.8 billion from the US during the period under review, as per the data.
Key Sectors Attracting FDI
The key sectors attracting the maximum of these inflows include the services segment, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals.
FDI Growth Post-2014
According to the Commerce and Industry Ministry, since 2014, India has attracted a cumulative FDI inflow of USD 667.4 billion (2014-24), registering an increase of 119 per cent over the preceding decade (2004-14).
“This investment inflow spans 31 states and 57 sectors, driving growth across diverse industries. Most sectors, except strategically important sectors, are open for 100 per cent FDI under the automatic route.
Sectoral Focus on Manufacturing
FDI equity inflows into the manufacturing sector over the past decade (2014-24) reached USD 165.1 billion, marking a 69 per cent increase over the previous decade (2004 -14), which saw inflows of USD 97.7 billion, an official has said.
Government’s Policy Review and Investor Confidence
To ensure that India remains an attractive and investor-friendly destination, the government reviews FDI policy on an ongoing basis and makes changes from time to time after having extensive consultations with stakeholders.
Future Outlook: Growth and Challenges
The overseas inflows into India are likely to gather momentum in 2025, as healthy macroeconomic numbers, better industrial output and attractive PLI schemes will attract more overseas players amid geopolitical headwinds, experts said.
They added that despite the global challenges, India is still the preferred investment destination.
Expert Insights on FDI Prospects
Avimukt Dar, Founding Partner, INDUSLAW, said the inflows are likely to continue in a robust form. There is strong anticipation that private equity financing in the tech sector, which had slowed down in the past, will pick up again since various funds have enjoyed good exits in the public markets and are ready to deploy again.
“The government can continue with structural reforms, particularly in the space of M&A, by nudging SEBI to make the public takeover regime more friendly for foreign players,” Dar said.
Rumki Majumdar, an economist at consultancy Deloitte India, said FDI inflows are likely to remain modest amidst expected policy changes in the US and the impact of policy stimulus on China’s economy.
Geopolitical situations may alter supply chains, and trade regulations would dampen investors’ sentiments, keeping capital flows volatile, she said, adding that the government will have to prioritise infrastructure capex with timely project execution, boost workforce skilling via PPPs and incentives, invest in digital ecosystems for productivity gains, and foster R&D for digital solutions that help inclusion and formalisation of the economy.
Factors Driving the Change
India’s remarkable achievement in attracting foreign direct investment (FDI) can be attributed to a range of contributing factors:
Competitiveness and Innovation: India’s ranking in the World Competitive Index 2024 jumped three positions to 40th, from 43rd in 2021. Additionally, India was named as the 48th most innovative country among the top 50 nations, securing the 40th position out of 132 economies in the Global Innovation Index 2023, a significant improvement from its 81st position in 2015. These rankings highlight the country’s progress in enhancing its innovation ecosystem and competitive edge.
Global Investment Standing: India was the third largest recipient of greenfield projects with 1,008 greenfield project announcements, as per the World Investment Report 2023. The number of international project finance deals in India also increased by 64%, making it the recipient of the second largest number of international project finance deals. These statistics underscore India’s growing prominence on the global investment stage.
Improved Business Environment: India made remarkable progress in improving its business environment, climbing from 142nd in 2014 to 63rd in the World Bank’s Doing Business Report (DBR) 2020, published in October 2019 before its discontinuation. This 79-rank jump over five years reflects the government’s sustained efforts to simplify regulations, reduce bureaucratic hurdles, and create a more business-friendly environment, significantly boosting investor confidence.
Policy Reforms: To promote FDI, the government has put in place an investor friendly policy, wherein most sectors, except certain strategically important sectors, are open for 100% FDI under the automatic route. Further, to simplify tax compliance for startups and foreign investors, the Income Tax Act, 1961 has been amended in 2024 to abolish angel tax and to reduce income tax rate chargeable on income of a foreign company.
Automatic vs. Approval Route for FDI
FDI is allowed through the automatic route in most of the sectors, while in areas like telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors.
Under the government approval route, a foreign investor has to get a prior nod from the ministry or department concerned, whereas, under the automatic route, an overseas investor is only required to inform the Reserve Bank of India (RBI) after the investment is made.
Restricted Sectors for FDI
At present, FDI is prohibited in some sectors. They are lottery, gambling and betting, chit funds, Nidhi company, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.
Importance of FDI for India’s Growth
FDI is important for India as it will require huge investments in the coming years for the infrastructure sector to boost growth. Healthy foreign inflows also help in maintaining the balance of payments and the value of the rupee.
(With agency inputs)