Since the opening up of the Indian economy in 1991, there has been a multifold improvement in the country’s investment climate for outsiders. The Indian government has been committed to ensuring easy inflow of funds, enabling global companies to set up shop. The government is determined as it comes up with Ease of doing business 2.0 which aims to simplify regulations and improve the country’s overall business environment. As pointed out by the Prime Minister in his address, the FD inflow in India has constantly increased from its 2014 level, which was USD 45 Bn.
Source: United Nation Conference on Trade and Development
COVID-19 witnessed global FDI flows shrinking across different countries, but India was one such destination where the inflows increased. This showcases how bullish the international investors have been with the future of the Indian market. The government opened up several key sectors to foreign investors and streamlined the process, making it easier to invest in the country. A more significant share is routed via the automatic route, barring key sectors like defence.
India aims to set itself up as the world’s manufacturing hub for various sectors and has eased on the FDI policy. The governments’ consistent efforts at a green development (which was quite evident in the budget too as many termed it is as the “green budget”) makes India a valuable and critical destination for global manufacturing.
The following trends in India’s Foreign Direct Investment are an endorsement of its status as a preferred investment destination amongst global investors:
- India has attracted a total FDI inflow of USD 19.8 billion from July 2021 to September 2021. Total FDI inflow till September 2021 was USD 31.1 Billion which is 4 per cent more than the previous year.
- Automobile Industry’ has emerged as the top sector during the first three months of F.Y. 2021-22 with a 27 per cent share of the total FDI equity inflow. But Computer software and hardware sector caught up in Q2FY22 as it emerged as the leading sector in terms of FDI inflow. Till September 2021, Computer sector brought in USD 7.1 Bn, Automobile sector accounted for USD 5 Bn while Services sector accumulated USD 3.1 Bn of FDI inflow. The other two sectors were trading at USD 2 Bn and Construction sector accounted for USD 1.3 Bn. They together accounted for the top 5 sectors for FDI inflow till September 2021.
- Karnataka was the top recipient state during the F.Y. 2021-22 (up to September 2021) accounting for USD 14 Bn of the total FDI equity inflows, followed by Maharashtra at USD 6.6 Bn (23%) and Delhi USD 5.1 Bn (11 per cent). Gujarat and Tamil Nadu were the other two states at USD 1.5 Bn and USD 1.1 Bn respectively.
- During April – September 2021, Singapore accounted for almost USD 8 Bn (25 per cent) of the total FDI equity inflow. Mauritius and United States accounted for USD 4.5 Bn (12.5 per cent) each while Netherlands and Japan accounted for USD 2.1 Bn and USD 0.8 Bn (7 per cent and 2.5 per cent) respectively.
India coming to the forefront of global FDI inflow has been aided by multiple factors. The government’s policy to improve the business environment by reducing red-tapism in the country has been a very big factor in it. Added to that with almost 54 per cent of the Indian population in the age bracket of 20 – 52-year-old, it bodes well for the Indian manufacturing industry.
This is the age bracket that forms the majority of the labour workforce. With constant upskilling at the very grass level via the various government schemes, the Indian population will be ready for work even in the tech-intensive industries. Moreover, the median age of the current Indian population is 30 years which makes it a country with a young population. Along with the growing labour force, the middle-class segment of the population is also expanding.
This expanding segment formulates the majority of consumer base and thus provides the investor with a read and a growing consumer market. Furthermore, government schemes to increase productivity and various tax incentives make investments profitable for global companies.
With many companies wanting to diversify their production destination, India has been one of the go-to destinations with investor-friendly conditions and a vast workforce to employ. India’s future as a global manufacturing hub seems promising.
Aditya Aggarwal
Investment Operation Intern
Aditya works in the operations team at green portfolio. He researches and prepares content and also handles communication and marketing. He is currently pursuing B.Com (Hons) from Sri Venkateswar College, University of Delhi. He has also completed CFA Level 1 and is preparing for Level 2.