Trend on Foreign Direct Investment (FDI) in India

  • July 28, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Trend on Foreign Direct Investment (FDI) in India

Subject :Economy

Section: External Sector

Context:Singapore (27.01%) and USA (17.94%) have emerged as top 2 sourcing nations in FDI equity flows into India in FY2021-22.

Concept:

  • As per the UNCTAD World Investment Report (WIR) 2022, on the global trends in FDI inflows, India has improved one position to 7th rank among the top 20 host economies for 2021.
  • India is rapidly emerging as a preferred country for foreign investments in the manufacturing sector. FDI Equity inflow in Manufacturing Sectors have increased by 76% in FY 2021-22.
  • 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.

Trends

  • The top sourcing nations in FDI equity flows into India in FY2021-22 are Singapore (27.01%) > USA (17.94%) > Mauritius > Netherland > Switzerland.
  • Sector wise trend of FDI Equity Inflow during FY 2021-22 are Computer Software & Hardware (24.60%)> Services Sector > Automobile Industry > Trading > Construction (Infrastructure) Activities.
  • State wise FDI Equity Inflow during FY 2021-22 are Karnataka (37.55%) > Maharashtra (26.26%) > Delhi > Tamil Nadu > Haryana.

Significant reforms by the government

  • The Government has implemented several transformative reforms under the FDI policy regime across sectors such as insurance, defence, telecom, financial services, pharmaceuticals, retail trading, e-commerce, construction & development, civil aviation, manufacturing
  • In India FDI up to 100% is allowed in non-critical sectors through the automatic route, not requiring security clearance from the Ministry of Home Affairs (MHA).
  • Prior government approval or security clearance from MHA is required for investments in sensitive sectors such as defence, media, telecommunication, satellites, private security agencies, civil aviation and mining, besides any investment from Pakistan and Bangladesh.

Foreign Direct Investment

  • FDI is an investment from a party in one country into a business or corporation in another country with the intention of establishing a lasting interest.
  • Lasting interest differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country.
  • Foreign direct investment can be made by expanding one’s business into a foreign country or by becoming the owner of a company in another country.
  • FDI is not just the inflow of money, but also the inflow of technology, knowledge, skills and expertise/know-how
  • FDI in India is allowed under two modes – either through the automatic route, for which companies don’t need government approval, or through the government route, for which companies need a go-ahead from the centre.

New FDI Policy:

  • An entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.
  • A transfer of ownership in an FDI deal that benefits any country that shares a border with India will also need government approval.
  • Investors from countries not covered by the new policy only have to inform the RBI after a transaction rather than asking for prior permission from the relevant government department.
economy Trend on Foreign Direct Investment (FDI) in India