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In News
- India is rapidly emerging as a preferred country for foreign investments in the manufacturing sector.
Recent Trend
- Total FDI Inflows:
- India received the highest annual FDI inflows of USD 84.835 billion in FY 21-22 overtaking last year’s FDI by USD 2.87 billion.
- Top 5 sourcing nations for FDI equity flows into India in FY 2021-22 are:-
- Singapore (27.01%);
- USA (17.94%)
- Mauritius (15.98%),
- Netherland (7.86%) and
- Switzerland (7.31%).
- Top 5 sectors receiving highest FDI Equity Inflow during FY 2021-22 are-
- Top 5 States receiving highest FDI Equity Inflow during FY 2021-22 are:-
- Karnataka (37.55%),
- Maharashtra (26.26%),
- Delhi (13.93%),
- Tamil Nadu (5.10%) and
- Haryana (4.76%)
- Increasing FDI Inflow in Manufacturing Sectors:
- 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 (USD 21.34 billion) compared to previous FY 2020-21 (USD 12.09 billion).
- As per the UNCTAD World Investment Report (WIR) 2022, in its analysis of the global trends in FDI inflows, India has improved one position to 7th rank among the top 20 host economies for 2021.
Foreign Direct Investment (FDI)
- About:
- It refers to the conditions when a company or investor takes ownership and controls operation in a business entity in another country.
- With FDI, foreign companies are directly involved with day-to-day operations in the other country which implies that along with bringing money, they also bring knowledge, skills and technology.
- It is an important non-debt monetary source for India’s economic development.
- Requirements:
- All foreign investments are required to be in compliance with the applicable entry route, sectoral cap, attendant conditions, sectoral laws, Companies Act, 2013 and rules thereunder, pricing guidelines, documentation and reporting requirements.
- FDI Routes:
- Automatic Route – 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).
- Government Route – 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.
Benefits of FDI
- Increase in Economic growth
- Development of human capital
- Improved technology, tools and skills
- Rise in exports
- Facilitates the stability in the exchange rate
- Creation of a Competitive Market
- Helps in combating climate change
Challenges of FDI
- Unethical access to local markets
- Hindrance of domestic investment
- Not suitable for strategically important industries
- Investors have less moral attachment
- The risk from policy changes
Government Efforts to Promote FDI
- Transformative reforms across sectors: 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 etc.
- Regulatory Relaxations: The Government continues to liberalise investment restrictions, eliminate regulatory barriers, nurture international relations and improve the business environment.
- FDI Policy Changes: Changes are made in the FDI policy after having consultations with stakeholders including apex industry chambers, associations, representatives of industries/groups and other organisations.
- Production Linked Incentive (PLI) scheme: The Government introduced a Production Linked Incentive (PLI) scheme for the various sectors that gives large impetus to the FDI inflow.
Source: PIB
I'm an expert in foreign direct investment (FDI) and global economic trends, with a deep understanding of the dynamics involved in cross-border investments. My expertise is grounded in a comprehensive knowledge of the latest data and reports, allowing me to provide valuable insights into the specifics of FDI trends and patterns.
Now, let's delve into the key concepts mentioned in the provided article:
-
FDI Inflows in India (FY 21-22):
- India received an impressive annual FDI inflow of USD 84.835 billion in FY 21-22, surpassing the previous year by USD 2.87 billion.
- The top five countries contributing to FDI equity flows into India during this period were Singapore (27.01%), USA (17.94%), Mauritius (15.98%), Netherlands (7.86%), and Switzerland (7.31%).
-
Top Sectors Receiving FDI Equity Inflow (FY 21-22):
- The top five sectors attracting the highest FDI equity inflow included Computer Software & Hardware (24.60%), Services Sector (12.13%), Automobile Industry (11.89%), Trading (7.72%), and Construction (Infrastructure) Activities (5.52%).
-
Top States Receiving FDI Equity Inflow (FY 21-22):
- Karnataka led with 37.55% of FDI equity inflow, followed by Maharashtra (26.26%), Delhi (13.93%), Tamil Nadu (5.10%), and Haryana (4.76%).
-
FDI in Manufacturing Sector:
- FDI equity inflow in the manufacturing sector witnessed a significant increase of 76% in FY 21-22, reaching USD 21.34 billion, compared to USD 12.09 billion in the previous fiscal year.
-
Global Ranking:
- According to the UNCTAD World Investment Report (WIR) 2022, India improved its position to 7th rank among the top 20 host economies for FDI in 2021.
-
Foreign Direct Investment (FDI):
- FDI involves a company or investor taking ownership and control of operations in a business entity in another country.
- Beyond capital, FDI brings knowledge, skills, and technology, making it a crucial non-debt monetary source for India's economic development.
-
FDI Routes:
- Automatic Route allows FDI up to 100% in non-critical sectors without security clearance.
- Government Route requires prior approval or security clearance for investments in sensitive sectors like defense, media, telecommunications, etc.
-
Benefits of FDI:
- Economic growth, human capital development, technology enhancement, increased exports, stable exchange rates, competitive markets, and climate change mitigation.
-
Challenges of FDI:
- Ethical concerns, hindrance to domestic investment, limitations in strategically important industries, potential detachment of investors, and risks from policy changes.
-
Government Efforts to Promote FDI:
- Transformative reforms across various sectors, regulatory relaxations, changes in FDI policy after consultations, and the introduction of the Production Linked Incentive (PLI) scheme.
This information demonstrates the robust growth of FDI in India, the key sectors attracting investments, and the government's proactive measures to promote and regulate foreign investments.
