India is on track to attract 100 billion US dollars in foreign direct investment in the current fiscal on account of economic reforms and ease of doing business said the Commerce industry Ministry in a statement recently. In 2021-22 India received the highest ever foreign inflows of 83.6 billion US Dollars. This FDI has come from 101 countries and invested across 31 union territories and states and 57 sectors in the country.
India received a record high foreign direct investment (FDI) inflow of rupees 6 lakh 31 thousand and 50 crores in the financial year 2021-22. The data particularly showed that the amount of FDI equity in the manufacturing sectors increased by 76 percent in the fiscal year 2021-22 to rupees 1 lakh 58 thousand and 332 crores from rupees 89 thousand and 766 crores in the previous year.
India’s foreign investment has two major components- foreign direct investment (FDI) and foreign portfolio investment (FPI)
This increase in FDI is significant for economic growth recovery especially when foreign portfolio investment (FP)I outflow is occurring due to the increase in the interest rates by the federal reserve- U.S Central Bank. The recent increase in FDI is the outcome of the government’s policy decision of increasing the FDI caps in several sectors including manufacturing, defense, civil aviation, retail, Telecom, retail trading, Insurance, Pharmaceuticals, e-commerce, construction, and development. The transition from volatile foreign portfolio investment which is predominantly the hot money that responds to the rise in interest rates in the U.S to stable FDI is crucial for sustainable economic growth upturn and this trend is welcome.
Foreign direct investment FDI in the manufacturing sector is under the automatic route. The government of India has taken a significant policy decision allowing 100% FDI in non-critical sectors through an automatic route that does not require security clearance from the Home Ministry
The prior government approval is required only for the sectors including defense, Telecom, media, private, security agencies, civil aviation, Mining, and satellites. In addition to these sectors, any foreign direct investment (FDI) from Pakistan and Bangladesh also requires prior government approval.
The Reserve Bank of India has taken enabling measures to strengthen the capital inflows which include exemption of incremental foreign currency, non-resident bank and non-resident external rupee deposits from cash Reserve ratio (CRR) and statutory Liquidity ratio (SLR) and permitting a foreign portfolio investment in commercial paper and non-convertible debentures with an original maturity of up to one year amongst others. The state-level data of FDI revealed that Karnataka and Maharashtra were the highest FDI recipient states in India in the financial year 2021-22. This is as per the recent statement from the government of India. Karnataka received 37.55 percent of the FDI equity inflows in India
In Karnataka significant component of FDI Equity inflow in FY 2001-22 has been reported in the sectors including 35 percent in computer software and Hardware, 20 percent in the automobile industry, and 12 percent in education. Maharashtra received 26.26 percent of the FDI inflows in India in FY 2021-22.
Delhi received 14% of total FDI inflows. The surge in FDI is due to the significant policy decisions taken by the government of India in recent years to establish a liberal and transparent foreign direct investment. FDI policy in India especially through enabling the automatic route of FDI inflows in most of the sectors in India. The Commerce and Industry Ministry said that the government reviews the FDI policy on an ongoing basis and makes significant changes from time to time to ensure that India remains an attractive and investor-friendly destination.