According to a recent report by EY (Ernst & Young) and Confederation of Indian Industries (CII) titled ‘Vision—Developed India: Opportunities and Expectations of MNCs’, India is poised to attract Foreign Direct Investment (FDI) worth USD 475 billion within the next 5 years. This is reinforced by the fact that 71% of Multinational Corporations (MNCs) operating in India see the country as a high-priority destination for global expansion.
An Overview of FDI in India
Over the last decade, India has experienced a consistent rise in FDI, with a record USD 84.8 billion received in FY22, even amidst the challenges presented by the pandemic and geopolitical developments. The country is increasingly viewed as an emerging manufacturing hub within global value chains, a burgeoning consumer market, and a destination for digital transformation. More than 60% of MNCs have reported an improved business environment in India over the last three years, further confirming the nation as an attractive investment destination.
Reasons for Optimism
India’s solid commitment to investments in the infrastructure sector offers assurance about its serious aspirations for providing world-class infrastructure and creating new investment opportunities. The optimism surrounding India’s growth is fueled by a strong momentum in domestic consumption, a booming services sector, rapid digitalization, and the government’s focus on bolstering manufacturing and infrastructure.
About Foreign Direct Investment
Foreign Direct Investment (FDI) involves a firm or individual from one country investing in business interests located in another country, acquiring a direct business interest in the process. The investor can establish a subsidiary in another country, acquire or merge with an existing foreign company, or start a joint venture partnership with a foreign entity. FDI is a major driver of economic growth, and a significant non-debt financial resource for India’s economic development.
Routes of FDI
There are two primary routes for FDI in India – the Automatic Route and the Government Route. In the case of the Automatic Route, the foreign investing entity does not require prior approval from the government or the RBI (Reserve Bank of India). However, for investments in sensitive sectors such as defence, media, telecommunication, satellites, private security agencies, civil aviation, and mining, prior government approval is required. The Government Route requires the foreign entity to take the approval of the government via the Foreign Investment Facilitation Portal (FIFP).
Status of FDI Inflows in India
FDI inflows in 2021 increased from USD 74,391 million in FY 19-20 to USD 81,973 million in FY 20-21. Significant contributors include Singapore (27.01%), USA (17.94%), Mauritius (15.98%), the Netherlands (7.86%), and Switzerland (7.31%). Top sectors attracting FDI are computer software & hardware, services sector, automobile industry, trading, and construction activities.
Government Initiatives to boost FDI
Various government initiatives are aimed at drawing more FDI. This includes new FDI norms, Make in India, Atmanirbhar Bharat, India’s footing in global supply chains, National technical Textile Mission, Production Linked Incentive Scheme, and the Pradhan Mantri Kisan SAMPADA Yojana.
The future of FDI in India looks promising. By continuing to improve business conditions, embracing digitization, and focussing on reforms to enhance ease of doing business, India can anticipate even higher levels of FDI in coming years.
