SURGE IN FDI INFLOWS

SURGE IN FDI INFLOWS

Subject: Economy

Context: Recently, the Ministry of Commerce & Industry has announced that in a pandemic-ravaged year, India managed to rake in the highest ever foreign direct investment during financial year 2020-21 at $81.72 billion.

Concept:

• Singapore was the biggest investor in India last fiscal, accounting for 29 per cent FDI, followed by the United States at 23 per cent and Mauritius at 9 per cent.
• The US and UK reported 227 per cent and 44 per cent year-on-year increase in FDI in India during FY21.
• Out of top 10 countries, Saudi Arabia was the top investor in terms of percentage increase during FY21.
• It invested $2,816.08 million in comparison to $89.93 million reported in the previous financial year.
• Among states, Gujarat received the highest FDI at 37 per cent of the total equity inflows.
• Maharashtra and Karnataka had the second and third highest flow at 27 per cent and 13 per cent, respectively.
• The computer software and hardware segment received the most FDI in FY21, accounting for 44 per cent of total FDI equity inflow.

Significance of increase in FDI inflows

• It reflects the confidence of international investors in India’s market as FDI inflows play an important role as India faces huge infrastructure funding requirements to boost growth.
• Increased Employment and Economic Growth: The increased FDI boosts the manufacturing as well as the services sector which in turn creates jobs, and helps reduce unemployment among the educated youth.
• Human Resource Development: The skills gained and enhanced through training and experience boost the education and human capital quotient of the country.
• Development of Backward Areas: The FDI enables the transformation of backward areas in a country into industrial centres which in turn provides a boost to the social economy of the area.
• Provision of Finance & Technology: The introduction of newer, enhanced technologies and processes results in their diffusion into the local economy, resulting in enhanced efficiency and effectiveness of the industry.
• Increase in Exports: The creation of 100% Export Oriented Units and Economic Zones have further assisted FDI investors in boosting their exports from other countries.
• Exchange Rate Stability: The constant flow of FDI into a country translates into a continuous flow of foreign exchange which helps the country’s Central Bank maintain a comfortable reserve of foreign exchange.