FDI inflows in the first nine months of the current fiscal have touched $67 billion and put the country on the path to achieving annual FDI inflows of $100 billion within a few years. But the government needs to put in some work in broadening the base of sectors receiving foreign investments.
India attracted record foreign direct investment (FDI) inflows of $67.54 billion during the first three quarters of the current financial year. If this trend sustains, it could put India within striking distance of its target of attracting $100-billion FDI annually.
Inflows during April-December 2019 (the corresponding period in the previous year) was $55.14 billion. This implies a year-on-year growth of 22 per cent, the Government of India’s Ministry of Commerce said in a recent press release.
“The steps taken in this direction during the last six and a half years have borne fruit, as is evident from the ever-increasing volumes of FDI inflows being received into the country. Continuing on the path of FDI liberalisation and simplification, government has carried out FDI reforms across various sectors. Measures taken by the government on the fronts of FDI policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country," the release said.
This performance is particularly noteworthy as it comes in the midst of the Covid-19 pandemic that forced the Narendra Modi government to impose the world’s most stringent lockdown that shuttered 65 per cent of the economy for the best part of six months.
This led to two successive quarters of negative economic growth – 24.1 per cent in the April-June quarter and 7.5 per cent in the July-September quarter – and pushed the country into a technical recession for the first time in decades.
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However, the economy is back on the growth path, posting a 0.4 per cent expansion in the October-December quarter. This trend is expected to sustain and most global and domestic agencies are projecting double-digit growth in 2021-22. This will enable the country to regain its crown as the fastest growing major economy in the world.
“India remains the bright spot in an otherwise shadowy year for global FDI, as global inflows plunged 42 per cent in 2020 ($859 billion), the lowest level since the 1990s, according to UNCTAD’s Investment Trend Monitor released on January 24. India clocked… the highest growth among countries, boosted by flows into the digital sector,” the Reserve Bank of India (RBI) said.
Apart from overall FDI inflows, FDI equity flows to India rose to $51.47 billion, an increase of 40 per cent compared to $36.77 billion during the April-December 2019 period.
On a net basis, FDI inflows jumped 30 per cent to $48.5 billion as repatriation of profits and disinvestments also rose by a similar percentage to $19.5 billion, RBI data showed.
“India means business: Despite Covid, FDI inflows into India grew at fastest rate among top economies. With double digit FDI growth of 13 per cent, the world is beating a path to India.
Policies and reforms initiated by PM @NarendraModi ji have made (India) a preferred destination for FDI,” India’s Commerce Minister Piyush Goyal tweeted.
This performance by India is all the more commendable as it comes in a year when global FDI flows have dropped back to the levels last seen in the early 1990s. Not surprisingly, FDI inflows into traditional major FDI recipients such as the US and the UK fell during the period under review. Among G-20 nations, only India, China, Japan and Saudi Arabia received higher FDI inflows than in the previous corresponding period, UNCTAD data showed.
The sectors that attracted the most FDI were telecom, IT and services. Within these sectors, it was Reliance Industries’ Jio Platforms, which alone attracted more than $20 billion in FDI from marquee investors such as Facebook, Google, the Saudi Arabian and Abu Dhabi sovereign wealth funds (SWFs), leading private equity investors such as KKR and Silver Lakes and a few others.
Besides, US e-commerce behemoth Amazon, which is locked in a fierce battle for dominance over the Indian retail market, also invested $1 billion in beefing up its Indian operations during the period under review. Its rival Reliance Retail has attracted a further $5 billion.
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The record FDI inflows into India, coming as it does in a year when its economy has been roiled by the Covid-19 pandemic, is a huge vote of confidence by global investors in the Modi government’s management both of the economy and of the Covid-19 outbreak.
Multilateral agencies such as the World Bank and IMF, global ratings firms S&P and Fitch as well as numerous foreign and Indian brokerages have projected a total rebound for the Indian economy in the coming financial year.
Then, the series of reforms implemented by the government – from cutting corporate tax rates in September 2019 to reducing several onerous compliance burdens to the production-linked incentive (PLI) scheme for 13 sectors, among several other such measures – are giving foreign investors the confidence that the long-term Indian growth story remains intact, slight hiccups such as the Covid-19 pandemic and the resistance in some pockets to the farm reforms, notwithstanding.
So, they are obviously looking past immediate quarterly numbers and investing for long-term growth and returns, which, most analysts are confident, will outpace those available in other countries around the world.
Even if the disaggregated figures are considered, FDI inflows during the October-December quarter was $26.2 billion, a very impressive 37 per cent improvement over the figure of $19.09 billion in the year ago period. Of this, $10.1 billion and $9.2 billion came in November and December, respectively.
The recently announced PLI schemes to attract investments in 13 sectors from companies looking to shift their production lines from China is expected to speed up the flow of FDI into India in the coming quarters.
Then, the government’s ambitious drive to privatise public sector companies such as Air India, Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India (SCI) and Container Corporation of India (Concor) has already attracted serious foreign interest. If a foreign investor wins a bid, then much greater of volumes of FDI will flow in on account of this.
However, as a research document by the National Council of Applied Economic Research points out, the breadth of the sectors attracting FDI is still very narrow. To grow faster, the government has to take steps to broad base the number of sectors drawing foreign investor interest.