INCREASE IN FOREIGN

DIRECT INVESTMENT
IN INDIA
INTRODUCTION
 India received record Foreign Direct Investment (FDI) in FY21
at $81.72 bn which is 10% higher than FY20.
 In a pandemic ravaged year India managed to rake in the
highest ever FDI during the financial year 2020-21.
 The FDI inflow includes equity capital of unincorporated
bodies, reinvested earnings and other capital.
 In this assignment I will be looking into the factors the sectors
and the countries that contributed to this increase in FDI.
 Even though the pandemic which was creating confusions
and uncertainties as to what the future beholds.
FOREIGN DIRECT INVESTMENT
 A FDI is an investment made by a firm or individual in one country
into business interests located in another country.
 Foreign direct investments are commonly made in open economies
that offer
a skilled workforce and
above-average growth prospects for the investor, as opposed
to tightly regulated economies.
 It frequently involves more than just a capital investment.
 It may include provisions of management or technology as well.
 The key feature of foreign direct investment is that it
establishes either effective control of or
at least substantial influence over the decision-making of a
foreign business.
TYPES OF FDI
 Horizontal FDI: A company invests in another company located
in a different country, wherein both the companies are producing
similar goods.
 Vertical FDI: Occurs when a multinational decides to acquire or
build an operation that either fulfills the role of a supplier
(backward vertical FDI) or the role of a distributor (forward
vertical FDI).
 Conglomerate FDI: When investments are made in two
completely different companies of entirely different industries
 Platform FDI: A business expands into a foreign company but
the products manufactured are exported to another 3 rd country
METHODS OF FDI
 An investor can make a FDI by expanding their business in
a foreign country.
 Reinvesting profits from overseas operations as well as
intra company loans to overseas subsidiaries.
 There are also multiple methods for a domestic to acquire
voting power in a foreign company
Acquiring voting stock in a foreign country
Mergers and Acquisitions
Joint ventures with foreign corporations
Starting a subsidiary of a domestic firm in a foreign
company
 ROUTES OF FDIOUTES FOR FDI
 Automatic Route: The non-resident or Indian company does not
require prior nod of the RBI or government of India for FDI.
 Government Route : There is no investment without prior
approval of the Govt. of India.
 There are few industries where FDI is strictly prohibited under
any route
 Atomic Energy Generation  Any Gambling or Betting Business
 Lotteries (online, private, govt. etc.)  Investment in Chit Funds
 Nidhi Company  Trading in TDR’s
 Agriculture or Plantation Activities (although there  Cigars, Cigarettes or any related Tobacco
are many exceptions like HORTICULTURE, FISHERIES, TEA Industry
PLANTATIONS, PISCICULTURE, ANIMAL HUSBANDRY
etc.)  Housing and Real Estate
LEADING SECTORS
 Computer Software and Hardware segment
received the most FDI in FY21 accounting for 44%
of total FDI equity inflow
 Construction (infrastructure) activities and
services sector followed with 13% and 8% share
respectively.
 COMPUTER SOFTWARE AND HARDWARE
 FDI in this sector jumped over threefold during
2020-21 on account of significant growth in
country’s technology
 The growth of this sector especially accelerated
during the lockdowns over the last year that has
forced business to process across the value chain.
 INFRASTRUCTURE
 The sheer demand volume of demand for development coupled with ease of doing business has
attracted FDI in this sector
 SERVICE SECTOR
 The foreign investments flow have been consistently increasing over the last 5 years in this
sector
 One possible reason for this increase could be because almost 56% of the registered foreign
companies in India are under this sector.
 Most companies are registered in the state of Maharashtra and Delhi
 PHARMACEUTICALS
 India is the largest provider of generic medicine globally and is the 3 rd largest pharmaceuticals
industry in the world by volume.
 Rising healthcare awareness due to pandemic acted as a major driver of the growth of this sector
 TELECOMMUNICATION AND AUTOMOBILES
 Witnessed a slowdown as against previous years due to the pandemic.
 According to the data shared by the government Singapore
remained the largest source of FDI for the 3 rd consecutive years
with a share of 29%. It was followed by USA with share of 23%
and Mauritius with 9%.
 Out of the top 10 countries Saudi Arabia is the top investor in
terms of percentage increase during FY21.
 There was a 227% and 44% increase in FDI equity inflow from
USA and UK respectively
 The Department for Promotion of Industry & Internal Trade
(DPIIT) says that majority of these FDI inflows were into
computer software segment and driven by investments into
JIO PLATFORMS, a subsidiary of Reliance Industries Ltd.
 A number of mega deals also contributed to Mergers and
Acquisition Activity
 Gujarat was the top recipient of FDI among states with
37% share of total FDI equity inflows.
 It has bagged the top spot in terms of highest FDI for
the 4th consecutive year now
 Maharashtra came second with 27% followed by
Karnataka 13%
 Data shows that the state of Gujarat received the
largest amount of FDI during the period followed by
Maharashtra, driven mainly by investments into Jio
Platforms
 Gujarat attracted the lion’s share of inbound FDI under
the computer software and hardware sector at 78%.
This was followed by Karnataka and Delhi 9% and 5%
respectively
  Large and Expanding Size of Market
 India as an Alternative to China
Why has India  Ease of Doing Business
Suddenly  Digital Revolution
become a  Well Manged Public Finances and Robust and Resilient
Hotspot for Financial System
Foreign  Strong and Diversified Industrial Infrastructural and
Logistics Base
Investments.  Exchange Rate Policy and Foreign Exchange Reserves
 Political Stability and Cordial International Relations
CONCLUSION
 The overall growth in FDI in India is thanks to its many assets
especially its high degree of specialisation in services with a
skilled, English speaking and inexpensive labour force and a
potential market of 1 billion inhabitants.
 Further the policy reforms, political stability and availability of
raw materials are positive factors that boost India's prospects.
 Recently enacted reforms in the country such as corporate tax
cuts, measures to improve ease of doing business, simplification
of labour laws, FDI related reforms and its focus on human
capital helped India’s image as a destination for FDI.