FDI inflow to India crosses $500 bn milestone over 20-year period

India received USD 144.71 billion from Mauritius and about USD 106 billion from Singapore during the period under review

Foreign direct investment (FDI) equity inflows into India crossed the $500 billion milestone during the April 2000 to September 2020 period, firmly establishing the country's credentials as a safe and key investment destination in the world.

According to the data of the Department for Promotion of Industry and Internal Trade (DPIIT), the inflows during the period stood at $500.12 billion.

About 29 per cent of the FDI came through the Mauritius route. It was followed by Singapore (21 per cent), the US, the Netherlands and Japan (each 7 per cent), and the UK (6 per cent).

India received $144.71 billion from Mauritius and about $106 billion from Singapore during the period under review.

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The other big investors have been from Germany, Cyprus, France, and the Cayman Islands.

Since 2015-16, FDI inflows have been recording significant growth. In that fiscal, the country received $40 billion FDI, an increase of 35 per cent over the previous year. In 2016-17, 2017-18, 2018-19 and 2019-20, the investments stood at $43.5 billion, $44.85 billion, $44.37 billion and $50 billion, respectively.

The key sectors which attracted the maximum of these inflows include services segment, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals.

"Indian FDI journey began with enactment of FEMA (that replaced the draconian FERA) in 1999. Looking back, the half-trillion dollar FDI in India is an indication of foreign investor's firm belief in India's strong economic fundamentals, stable political outlook and sustained economic growth which generated returns for investors even during the global recession of 2007-08," Nischal Arora, Partner-Regulatory, Nangia Andersen India said.

He said as the country cautiously steps into the next decade under the shadow of the ongoing pandemic, it is imperative that the government continues its measures to attract FDI in the manufacturing and high-end technology sectors.

Rajat Wahi, Partner, Deloitte India, said FDI equity inflows crossing $500 billion "is indeed a great milestone, and continues to show the trust and faith that the global investors have in India's growing economy".

This growth is a strong reflection of the market potential of India coupled with the steady state of market reforms that India has undertaken since 2000, including opening up of various sectors of the economy to 100 per cent FDI over the last 5 years, he said.

When asked about what more steps the government can take to give a leg-up to increase FDI, Wahi said while the overall market potential of India will always be high, given the large population, many other factors like ease of doing business, land, labour laws, tax rates, availability of talent, logistics, and political stability also play important role in attracting FDI to any country.

"While we have improved significantly across many of these areas over the last decade, and especially over the last 5 years, there is still a long way to go for us to be able to compete with countries like China and other markets like Vietnam, Thailand, and Malaysia," he added.

However, Gunjan Shah, Partner, Private Equity, Merger & Acquisitions & General Corporate, Shardul Amarchand Mangaldas, said: "I would not attribute this (crossing $500 billion mark) to increased investor confidence in the Indian market. There is a lot of liquidity around the world right now and the real test would be to see if a higher proportion of that is being deployed in India.”

Shah said clarity on regulatory and tax issues could help increase FDI and the government should also consider further liberalisation of capital intensive industries like banking and insurance.