FDI inflows into India cross $1 Trillion

Syllabus: GS3/ Economy

Context

• Foreign Direct Investment (FDI) inflows into India have surpassed the $1 trillion mark in the April 2000-September 2024 period.

What is Foreign Direct Investment (FDI) ?

• It refers to investments made by foreign entities (individuals or companies) in the business interests of another country, typically in the form of ownership or control of enterprises.
• At present, FDI is prohibited in lottery, gambling and betting, chit funds, Nidhi company, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.

Routes for FDI in India

• Automatic Route: No prior approval is required.
  • Investors need to inform the Reserve Bank of India (RBI) after making the investment.
  • Most sectors, such as manufacturing and software, fall under this route.
• Government Approval Route: Requires prior approval from the concerned Ministry or Department.
  • Sectors such as telecom, media, pharmaceuticals, and insurance fall under this route.

Trends in FDI Inflows

• The cumulative amount of FDI includes equity, reinvested earnings and other capital.
• Since 2014, India has attracted $667.4 billion in cumulative FDI inflows, marking a 119% increase over the preceding decade (2004-2014).
• Source:25% of the FDI came through the Mauritius route.
  • It was followed by Singapore (24%), the U.S. (10%), the Netherlands (7%), Japan (6%), the U.K. (5%), the UAE (3%) and Cayman Islands, Germany and Cyprus accounted for 2% each.
• The key sectors attracting the maximum inflows include the services segment, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals.

Importance of FDI

• Infrastructure Development: India requires significant investments to improve infrastructure and boost growth.
• Balance of Payments (BoP): FDI helps bridge the current account deficit by bringing in foreign capital.
• Currency Stability: Healthy inflows support the value of the rupee in global markets.
• Technology Transfer and Employment: FDI brings modern technology and creates jobs across sectors.

Challenges

• Geopolitical Tensions: Ongoing conflicts and trade wars disrupt global supply chains and affect investor sentiment.
• Regulatory Issues: Complex approval processes and varying sectoral caps can deter investors.
• Global Economic Uncertainty: Recession risks and high inflation globally can keep capital flows volatile.
• Infrastructure Bottlenecks: Delays in project execution and inadequate infrastructure remain challenges.

Steps taken by Government

• Liberalized FDI Policy: Increased FDI limits in defense (74%), insurance (74%), and single-brand retail (100%).
• Production-Linked Incentive (PLI) Schemes: Launched in sectors like electronics, pharma, textiles, and automobiles to attract foreign investment.
• Infrastructure Development: Programs like Gati Shakti, Bharatmala, and Sagarmala focus on improving connectivity.
• Digital Ecosystem: Promotion of digital payments, e-governance, and technology-driven reforms.

Way Ahead

• Prioritize Infrastructure Capex: Ensure timely project execution and attract public-private partnerships (PPPs).
• Workforce Skilling: Collaborate with the private sector to upskill the workforce to meet industry demands.
• Strengthen R&D and Innovation: Promote research and development to enhance productivity and innovation in key sectors.

Source: TH