Context: According to the Commerce and Industry Ministry, since 2014, India has attracted a cumulative FDI inflow of USD of approx. 667 billion (2014-24), registering an increase of 119 per cent over the preceding decade (2004-14).

Key Highlights

• Major Source Countries: Mauritius (25%) of total FDI inflows; Singapore (24%); USA: 10% Other Key Sources: Netherlands, Japan, UK, UAE, Germany, Cyprus & Cayman Islands

• Key Sectors Attracting FDI: Services sector (16% of total FDI inflows); Computer software and hardware (15%); Trading (7%); Telecommunications (6%).

About FDI

• It means investment through capital instruments by a person resident outside India in an unlisted Indian company; or in ten per cent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

• It is largely non debt creating capital flow.

Importance of FDI

• Infrastructure Development: India requires significant investments to improve infrastructure and boost growth.

• Balance of Payments (BoP): FDI helps bridge the current account deficit by bringing in foreign capital.

• Currency Stability: Healthy inflows support the value of the rupee in global markets.

• Technology Transfer and Employment: FDI brings modern technology and creates jobs across sectors.

Challenges

• Geopolitical Tensions: Ongoing conflicts and trade wars disrupt global supply chains and affect investor sentiment.

• Regulatory Issues: Complex approval processes and varying sectoral caps can deter investors.

• Global Economic Uncertainty: Recession risks and high inflation globally can keep capital flows volatile.

• Infrastructure Bottlenecks: Delays in project execution and inadequate infrastructure remain challenges.

Significance

• FDI allows the transfer of technology—particularly in the form of new varieties of capital inputs—that cannot be achieved through financial investments or trade in goods and services. 

• Recipients of FDI often gain employee training in the course of operating the new businesses, which contributes to human capital development in the host country.

• Profits generated by FDI contribute to corporate tax revenues in the host country.

• FDI helps maintain a stable Balance of Payment and support the value of the rupee.

Govt policies boosting foreign investments in India

• Most sectors except certain strategically important sectors, are open for 100% FDI under the automatic route. 

• Almost 90% of the FDI inflow is received under the automatic route.

• More than 42,000 compliances have been reduced and more than 3,800 provisions have been decriminalized. E.g., Jan Vishwas (Amendment of Provisions) Act, 2023.

• The Department for Promotion of Industry and Internal Trade (DPIIT) has developed the National Single Window System (NSWS) portal as a one-stop for taking all the regulatory approvals and services in the country.

• Liberalized FDI Policy: Increased FDI limits in defense (74%), insurance (74%), and single-brand retail (100%).

• Production-Linked Incentive (PLI) Schemes: Launched in sectors like electronics, pharma, textiles, and automobiles to attract foreign investment.

• Infrastructure Development: Programs like Gati Shakti, Bharatmala, and Sagarmala focus on improving connectivity.

• Digital Ecosystem: Promotion of digital payments, e-governance, and technology-driven reforms.

Road Ahead

• Prioritize Infrastructure Capex: Ensure timely project execution and attract public-private partnerships (PPPs).

• Workforce Skilling: Collaborate with the private sector to upskill the workforce to meet industry demands.

• Strengthen R&D and Innovation: Promote research and development to enhance productivity and innovation in key sectors.