FOREIGN DIRECT INVESTMENT IN INDIA

  • Singapore and USA have emerged as top 2 sourcing nations in Foreign Direct Investment (FDI) equity flows into India in FY 2021-22 followed by Mauritius, Netherland and Switzerland.
  • UNCTAD World Investment Report (WIR) 2022 has ranked India at 7th rank among the top 20 host economies for 2021, in terms of FDI.
  • India received the highest annual FDI inflows of USD 84,835 million in FY 21-22, overtaking last year’s FDI by USD 2.87 billion.
  • In 2021, FDI inflows increased from USD 74,391 million in FY 19-20 to USD 81,973 million in FY 20-21.

Top 5 FDI Sourcing Nation:

  1. Singapore: 27.01%
  2. USA: 17.94%
  3. Mauritius: 15.98%
  4. Netherland: 7.86%
  5. Switzerland: 7.31%

Top Sectors:

  • Computer Software & Hardware: 24.60%
  • Services Sector (Fin., Banking, Insurance, Non Fin/Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis, Other): 12.13%
  • Automobile Industry: 11.89%
  • Trading: 7.72%
  • Construction (Infrastructure) Activities: 5.52%

Top Destinations:

  1. Karnataka: 37.55%
  2. Maharashtra: 26.26%
  3. Delhi: 13.93%
  4. Tamil Nadu: 5.10%
  5. Haryana: 4.76%

FDI Equity inflow in Manufacturing Sectors have increased by 76% in FY 2021-22 (USD 21.34 billion) compared to previous FY 2020-21 (USD 12.09 billion).

Foreign Direct Investment

  • A Foreign Direct Investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country.
  • FDI lets an investor purchase a direct business interest in a foreign country.
  • Investors can make FDI in a number of ways.
  • Some common ones include establishing a subsidiary in another country, acquiring or merging with an existing foreign company, or starting a joint venture partnership with a foreign company.
  • Apart from being a critical driver of economic growth, FDI has been a major non-debt financial resource for the economic development of India.
  • It is different from Foreign Portfolio Investment where the foreign entity merely buys stocks and bonds of a company.
  • FPI does not provide the investor with control over the business.

Components:

  • It is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
  • It comprises the direct investors’ share of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor.
  • Such retained profits by affiliates are reinvested.
  • These refer to short- or long-term borrowing and lending of funds between direct investors (or enterprises) and affiliate enterprises.
  • Government policies/decisions are of crucial importance in creating a conducive environment for global investors. The disruptions induced by the pandemic have given opportunities for India to expand its global footprints.
  • The government is striving to strengthen the FDI environment through an array of policy initiatives and reforms at all levels.
  • This also has to be complemented by a sound trade policy to boost exports further, encourage inclusive development, and incentivise R&D (research & development) to make our industry globally competitive.
  • FDIs have more potential to facilitate the growth of the Indian economy than Foreign Portfolio Investment (FPI).
  • It should be ensured that India remains an attractive, safe, predictable destination for serious, long term investors.
  • A level playing field is necessary if we want continued foreign investments. Sneaking loyalty towards local players should be avoided.

SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT

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