FDI INFLOW TOUCHES $82 BILLION IN FY21
WHY IN NEWS?
In the Financial Year 2020-21, India sees growth of 10% (to $82 bn) in Foreign Direct Investment (FDI). FDI equity investments rise 19% to $60 billion.
In 2019-20, India had received $74.39 billion in FDI, with almost $50 billion coming in the form of equity investments.
TOP INVESTORS:
Singapore emerged as the top investor with almost a third of all investments, followed by the US which accounted for 23% of FDI and Mauritius from where 9% of the foreign capital flows originated.
SHARPEST GROWTH FROM SAUDI ARABIA:
The sharpest growth among the top 10 FDI-origin countries was recorded from Saudi Arabia.
Investments jumped from $90 million in 2019-20 to $2.8 billion in 2020-21.
FDI EQUITY:
FDI equity flows from the US more than doubled during the year compared with 2019-20, while investments from the UK surged 44%.
TOP FDI DESTINATIONS;
Gujarat was the top FDI destination in 2020-21, accounting for 37% of the foreign equity inflows, followed by Maharashtra (2nd) which got 27% of the equity inflows.
Karnataka (3rd) accounted for another 13% of the equity investments.
TOP SECTORS:
Computer software and hardware has emerged as the top sector during 2020-21 with about 44% share of the total FDI equity inflow.
These are followed by construction (infrastructure) activities (13%) and services sector (8%), respectively.
FOREIGN DIRECT INVESTMENT
Definition: FDI is the process whereby residents of one country (the home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).
It is different from Foreign Portfolio Investment where the foreign entity merely buys stocks and bonds of a company. FPI does not provide the investor with control over the business.
THREE COMPONENTS:
Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
Reinvested earnings comprise the direct investors’ share of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested.
Intra-company loans or intra-company debt transactions refer to short- or long-term borrowing and lending of funds between direct investors (or enterprises) and affiliate enterprises.
ROUTES THROUGH WHICH INDIA GETS FDI:
Automatic Route: In this, the foreign entity does not require the prior approval of the government or the RBI.
Government Route: In this, the foreign entity has to take the approval of the government.
The Foreign Investment Facilitation Portal (FIFP) facilitates the single window clearance of applications which are through approval route.
It is administered by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.
GOVERNMENT MEASURES TO PROMOTE FDI:
In 2020, factors such as a swift response in combating the Covid crisis, favourable demographics, impressive mobile and internet penetration, massive consumption and technology uptake, played an important role in attracting the investments.
Launch of Schemes attracting investments, such as, National technical Textile Mission, Production Linked Incentive Scheme, Pradhan Mantri Kisan SAMPADA Yojana, etc.
The government has elaborated upon the initiatives under the Atmanirbhar Bharat to encourage investments in different sectors.
As a part of its Make in India initiative to promote domestic manufacturing, India deregulated FDI rules for several sectors over the last few years.