Introduction
Apart from being a critical driver of economic growth, Foreign Direct Investment (FDI) has been a major non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of the relatively lower wages, special investment privileges like tax exemptions, etc. When foreign investment is being made in India, it also helps the country achieve technical know-how and generate employment.
The Indian Government’s favourable policy regime and robust business environment has ensured that foreign capital keeps flowing into the country. The Government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.
Market size
According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 572.81 billion between April 2000-December 2021, indicating that the government's efforts to improve ease of doing business and relaxing FDI norms have yielded results.
Total FDI inflow into India in the third quarter of FY22 stood at US$ 17.93 billion, while the FDI equity inflow for the same period stood at US$ 12.02 billion.
Data between April-December 2021 indicates that the computer software and hardware industry attracted the highest FDI equity inflow of US$ 10.25 billion, followed by the automobile sector at US$ 5.96 billion, services sector at US$ 5.35 billion, trading sector at US$ 2.99 billion, construction activities at US$ 1.59 billion, and drugs and pharmaceuticals at US$ 1.21 billion.
Between April-December 2021, India recorded the highest FDI equity inflow from Singapore (US$ 11.69 billion), followed by the US (US$ 7.52 billion), Mauritius (US$ 6.58 billion), the Cayman Islands (US$ 2.74 billion), the Netherlands (US$ 2.66 billion), and the UK (US$ 1.44 billion).
In the same period, Karnataka registered the highest FDI equity inflow of US$ 17.25 billion, followed by Maharashtra (US$ 9.69 billion), Delhi (US$ 6.39 billion), Tamil Nadu (US$ 2.38 billion), Gujarat (US$ 2.06 billion), and Haryana (US$ 2.03 billion).
During the third quarter of FY22, foreign owned assets in India stood at US$ 926.2 billion, up from US$ 852.4 billion in the third quarter of FY21.
Investments/Developments
Some of the recent investments and developments in the FDI space are as follows:
- The following investments were made in May 2022:
- Italian financial services major Generali completed the acquisition of 25% stake in Future Generali India Insurance from Future Enterprises for Rs. 1,252.96 crore (US$ 161.92 million).
- GenWorks Health secured a second round of funding worth Rs. 135 crore (US$ 17.44 million) from a consortium of investors including Somerset Indus Capital Partners, Morgan Stanley through its funding arm Grand Vista, Evolvence & Wipro GE.
- Toplyne, a software-as-a-service (SaaS) startup, raised US$ 15 million in a funding round led by Tiger Global and Sequoia Capital India.
- Kiranakart Technologies Pvt. Ltd, which runs 10-minute grocery delivery platform Zepto, raised US$ 200 million in a Series D funding round led by Y Combinator’s Continuity Fund, which valued it at US$ 900 million.
- KoinBasket, a thematic crypto investment start-up, raised US$ 2 million in a pre-seed funding round.
- Invictus Insurance Broking Services Pvt. Ltd, which runs insurtech platform Turtlemint Insurance Services Pvt. Ltd, raised US$ 120 million in a Series-E funding round led by Amansa Capital, Jungle Ventures, and Nexus Venture Partners.
- Jaipur-based online furniture & home decor platform Woodenstreet.com raised around US$ 30 million in a Series-B funding round led by WestBridge Capital.
- B2B cross-border tech platform Geniemode received US$ 28 million in Series-B funding led by Tiger Global and Info Edge Ventures.
- In January 2022, Google announced an investment of US$ 1 billion in Indian telecom company Bharti Airtel, which includes an equity investment of US$ 700 million for a 1.28% stake in the company, and US$ 300 million for potential future investment in areas like smartphone access, networks, and the cloud.
- Canada’s pension fund investment board invested Rs. 1,200 crore (US$ 160.49 million) as an anchor investor in the IPO of multiple Indian companies - One 97 communication (Paytm), Zomato, FSN E-Commerce Ventures (Nykaa), and PB Fintech.
- The FDI in India’s renewable energy sector stood at US$ 1.03 billion for the first half of the financial year 2021-22.
Government Initiatives
The government has taken plenty of initiatives to attract FDI in India:
- The government has amended rules of the Foreign Exchange Management Act (FEMA), allowing up to 20% FDI in the insurance company LIC through the automatic route. The Government of India is considering easing scrutiny on certain foreign direct investments from countries that share a border with India.
- The implementation of measures like PM Gati Shakti, single window clearance and GIS-mapped land bank are expected to push FDI inflows in 2022.
- The government is likely to introduce at least three policies as part of the Space Activity Bill in 2022. This Bill is expected to clearly define the scope of foreign FDI in the Indian space sector.
- In September 2021, India and the UK agreed for an investment boost to strengthen bilateral ties for an ‘Enhanced Trade Partnership’.
- In September 2021, the Union Cabinet announced that to boost the telecom sector, they’ll allow 100% FDI via the automatic route in, up from the previous 49%.
- In August 2021, the government amended the Foreign Exchange Management (non-debt instruments) Rules, 2019, to allow the 74% increase in FDI limit in the insurance sector.
Road ahead
India is expected to attract FDI worth US$ 120-160 billion per year by 2025, according to a CII and EY report.
In terms of attractiveness, investors ranked India #3; ~80% investors have plans to invest in India in the next 2-3 years, while ~25% reported investments worth more than US$ 500 million, the Economic Times reported.
Further, as per a Deloitte report published in September 2021, India remains an attractive market for international investors both in terms of short-term and long-term prospects.
India ranked 43rd on the Institute for Management Development’s (IMD) annual World Competitiveness Index 2021. According to the IMD, India's developments in government efficiency are primarily due to relatively stable public finances (despite COVID-19-induced challenges), and optimistic sentiments among Indian business stakeholders with respect to the funding, and subsidies offered by the government to private firms.
