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Home Articles FEMA - Foreign Exchange Management Mr. M. GOVINDARAJAN Experts This |
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FOREIGN DIRECT INVESTMENT IN INDIA – RECENT TREND |
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FOREIGN DIRECT INVESTMENT IN INDIA – RECENT TREND |
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Introduction The concept of foreign direct investment was introduced in the year 1991 by the then Finance Minister Dr. Manmohan Singh under the Foreign Exchange Management Act, 1999. Foreign direct investment is a critical driver of economic growth of any country. India is not an exception to this. India attracts foreign direct investment because of the lower wages prevailing in the country, certain privileges such as income tax exemption etc. By the process of foreign direct investment India has momentum in technical knowhow and also to increase the employment opportunities in India. The foreign investment has been witnessing a continuous flow into India because of the favorable policy adopted by the Indian Government and the business environment. The Government has undertaken many initiatives for the last years relaxing FDI norms in various sectors. Total FDI inflows As per the fact sheet on foreign direct investment (‘FDI’ for short) from April 2000 to March 2020 the cumulative amount of FDI inflows (equity inflows +‘Re-invested earnings’ +‘Other capital’) is US$680,919 million. The cumulative amount of FDI equity inflows from April 2000 to March 2020 is US $ 469,998 million. Equity inflows for the financial year 2019 – 20 The equity inflows from the month April 2019 to March 2020 have been given in the following Table- Table - 1 FDI EQUITY INFLOWS (MONTH-WISE) DURING THE FINANCIAL YEAR 2019-20
Source: https://dipp.gov.in/sites/default/files/FDI_Factsheet_March20_28May_2020.pdf # Figures are provisional, subject to reconciliation with RBI, Mumbai. The financial year 2019-20 witnessed a higher growth of 13% in FDI inflow than the year 2018 – 19 by US$ 5,611 million. January 2020 witnessed the highest inflow to the tune of US$ 5,570 million followed by April 2019 FDI inflow to the tune of US$ 5,252 million. The trend in increase of FDI equity inflows witnessed the Government’s effort to improve ease of doing business and relaxing FDI norms. Sectoral FDI equity inflow Nearly 63 sectors have been benefited by FDI equity inflow. In the following table the sectors attracting highest FDI equity inflows are given- Table - 2 SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS
Source: https://dipp.gov.in/sites/default/files/FDI_Factsheet_March20_28May_2020.pdf Notes:
Among the 63 sectors the highest FDI attracted sectors are services sector, computer software and hardware, telecommunications, trading, construction and development, automobile industry, chemicals (other than fertilizers), construction (infrastructure activities), drugs and pharmaceuticals and hotel & tourism. The automobile industry, chemicals (other than fertilizers) and hotel & tourism sectors have received considerable FDI equity inflows in the financial year 2019 – 20. Highest States attracting FDI equity inflows In the following table the States which attracted highest FDI equity inflow in India is given- Table - 3 STATES/UTs ATTRACTING HIGHEST FDI EQUITY INFLOWS FROM OCTOBER 2019 TO MARCH 2020
Source: https://dipp.gov.in/sites/default/files/FDI_Factsheet_March20_28May_2020.pdf From the above table it can be inferred that the Maharashtra is holding rank 1 of the States attracting highest FDI equity inflow to the tune of US$ 7,263 million. The share of Maharashtra in FDI equity inflow in India is 30%. Next follows the States of Karnataka, Delhi and Gujarat. Top 10 investing countries FDI inflows into India are coming from nearly 175 countries in the world. The following table will show the top 10 countries contributing highest FDI equity inflow into India- Table - 4 SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS In US $ million
Source: https://dipp.gov.in/sites/default/files/FDI_Factsheet_March20_28May_2020.pdf The above table shows that in the financial year 2019 – 20 India received the maximum FDI equity inflow from Singapore (US$ 14.67 billion), followed by Mauritius (US$ 8.24 billion), Netherlands (US$ 6.50 billion), USA (US$ 4.22 billion) and Japan (US$ 3.22 billion). Steps taken by Government The Government of India has taken steps to increase the FDI flow into India continuously. The following steps are taken in the recent past for attracting FDI inflow-
Recent developments
Covid 19 impact Due to Korana the Government announced lock down from March 26, 2020 and still it is continuing almost in all States. The business is entirely affected and there are many job losses in the country. Because of Covid 19 there may be a sharp decline in the FDI inflow into India in the current year. ‘In South Asia, FDI is also expected to contract sharply. In India, the biggest FDI host in the sub-region, with more than 70% of inward stock, the number of green field investment announcements declined by 4% in the first quarter, and mergers and amalgamations contracted by 58%’, the United Nations Conference on Trade and Development (UNCTAD) report said. However, the United Nations Conference on Trade and Development has said that India’s economy could prove the most resilient in South Asia and its large market will continue to attract market-seeking investments to the country even as it expects a dramatic fall in global foreign direct investment. Even in the Covid period, 17 investors from Germany, Finland, Raiwan, France, South Korea, Japan, China, USA, UK and Australia invested a sum of ₹ 15,128 crores in Tamil Nadu. It is expected that these projects will create 47,150 jobs in Tamil Nadu. Conclusion India will be one of the countries attracting highest FDI inflow in the coming years. Though there is a setback due to Covid 19 it is hoped that the economy of India will be revived in the next year and attained its economic goal. Annual FDI inflow in the country is expected to rise to US$ 75 billion over the next five years as per the report by UBS. The Government of India is also aiming to achieve US$ 100 billion worth of FDI inflow in the next two years. References:
By: Mr. M. GOVINDARAJAN - October 3, 2020
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