Foreign direct investment (FDI) inflows into India have crossed the $1 trillion milestone in the April 2000-September 2024 period, firmly establishing the country’s reputation as a safe and key investment destination globally.
According to data from the Department for Promotion of Industry and Internal Trade (DPIIT), the cumulative amount of FDI, including equity, reinvested earnings and other capital, stood at $1,033.40 billion during the said period.
About 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.
India received $177.18 billion from Mauritius, $167.47 billion from Singapore and $67.8 billion from the U.S. during the period under review, as per the data.
The key sectors attracting the maximum of these inflows include the services segment, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals.
According to the Commerce and Industry Ministry, since 2014, India has attracted a cumulative FDI inflow of $667.4 billion (2014-24), registering an increase of 119% over the preceding decade (2004-14).
FDI equity inflows into the manufacturing sector over the past decade (2014-24) reached $165.1 billion, marking a 69% increase over the previous decade (2004 -14), which saw inflows of $97.7 billion, an official has said.
To ensure that India remains an attractive and investor-friendly destination, the government reviews FDI policy on an ongoing basis and makes changes from time to time after having extensive consultations with stakeholders.
The overseas inflows into India are likely to gather momentum in 2025, as healthy macroeconomic numbers, better industrial output and attractive PLI schemes will attract more overseas players amid geopolitical headwinds, experts said.
They added that despite the global challenges, India is still the preferred investment destination.
Avimukt Dar, Founding Partner, INDUSLAW, said the inflows are likely to continue in a robust form. There is strong anticipation that private equity financing in the tech sector, which had slowed down in the past, will pick up again since various funds have enjoyed good exits in the public markets and are ready to deploy again.
“The government can continue with structural reforms, particularly in the space of M&A, by nudging SEBI to make the public takeover regime more friendly for foreign players,” Mr. Dar said.
Rumki Majumdar, an economist at consultancy Deloitte India, said FDI inflows are likely to remain modest amidst expected policy changes in the U.S. and the impact of policy stimulus on China’s economy.
Geopolitical situations may alter supply chains, and trade regulations would dampen investors’ sentiments, keeping capital flows volatile, she said, adding that the government will have to prioritise infrastructure capex with timely project execution, boost workforce skilling via PPPs and incentives, invest in digital ecosystems for productivity gains, and foster R&D for digital solutions that help inclusion and formalisation of the economy.
Commenting on the data, Manav Nagaraj, Partner, Shardul Amarchand Mangaldas & Co, said FDI in India is likely to continue to rise in all areas – early-stage investments, growth capital and strategic investments.
“India as an investment destination has historically been and continues to be attractive for foreign investors across various countries, whether from the U.S., the U.K., continental Europe or Asian countries,” he added.
FDI is allowed through the automatic route in most of the sectors, while in areas like telecom, media, pharmaceuticals and insurance, government approval is required for foreign investors.
Under the government approval route, a foreign investor has to get a prior nod from the Ministry or department concerned, whereas, under the automatic route, an overseas investor is only required to inform the Reserve Bank of India (RBI) after the investment is made.
At present, FDI is prohibited in some sectors. They are lottery, gambling and betting, chit funds, Nidhi company, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.
FDI is important for India as it will require huge investments in the coming years for the infrastructure sector to boost growth. Healthy foreign inflows also help in maintaining the balance of payments and the value of the rupee.
Published – December 08, 2024 10:36 pm IST