- 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:
- Singapore: 27.01%
- USA: 17.94%
- Mauritius: 15.98%
- Netherland: 7.86%
- 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:
- Karnataka: 37.55%
- Maharashtra: 26.26%
- Delhi: 13.93%
- Tamil Nadu: 5.10%
- 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