$83 bn in FY22: FDI will play a significant role in India’s future economic development

Several nations said that they found India a lucrative destination because of its domestic market, and not only as a hub for exports.

Gross Foreign Direct Investment (FDI) inflows increased, from $82 billion in FY 2021 to $83.6 billion in FY 2022.

Several sectors remained attractive to investors, including FMCG, IT, pharma, financial services, etc. Some of the top countries from where equity inflows were recorded were Singapore ($11.69 billion), the US ($7.52 billion) and Mauritius, apart from the UK, Cayman Islands, and Netherlands.

India’s favourable business landscape and supportive government policymaking have increased the ease of doing business in the country.

Investor confidence has risen with a strong vaccination rate, recovery stimulus packages, and foreign investment programmes. Moreover, the nation is committed to a serious sustainability agenda, in sync with global money managers’ green and transition assets.

According to the PHD Chamber of Commerce and Industry (PHDCCI), India is expected to attract $100 billion in FDI inflows in 2022-23.

FDI will play a significant role in India’s future economic development. Not only is it an important non-debt financial resource, but it is also a channel for the transfer of technology from top investors. This will raise the country’s competitive advantage across global platforms.

Recent Developments in the FDI Space in India:

The year 2022 started on a positive note with search giant Google announcing an investment of $1 billion in Indian telecom company

.

This included an equity investment of $700 million and an additional investment of $300 million for potential future projects in access, networks and the cloud.

The investment came under the India Digitisation Fund, which was launched in 2020 to accelerate India’s digital economy.

Canada’s Pension Fund Investment Board (CPPIB) increased its investment portfolio in India, from ecommerce to edtech and infrastructure in 2022.

CPPIB invested over $160.49 million in the IPO of several companies, including

, , FSN E-Commerce Ventures () and (). The company has also invested in firms like Byju’s, Emeritus, and ChargePoint, among others.

In May 2022, Generali became the first foreign insurer to get a majority stake in its Indian life and real estate joint venture companies. This is the first after India passed the Insurance (Amendment) Act of 2021 to increase the FDI cap in the insurance sector to 74% from 49%.

Generali has now acquired a 25% stake in Future Generali India Insurance from

for $161.92 million.

GenWorks Health completed a second round of funding of $17.44 million through its funding arm, Grand Vista,

GE and Evolvence. The funding was secured from numerous investors, including Morgan Stanley and Somerset Indus Capital Partners.

The 2022 Union Budget and Other Government Policies to Support FDI:

Deep sector reforms, such as the PM GatiShakti initiative, will push FDI inflows going forward. This is a national master plan for multi-modal connectivity, where over 16 ministries will coordinate to attract investments in strategic infrastructure connectivity projects.

Around $26 billion in production-linked opportunities has been introduced under this scheme, to enable extensive partnerships with foreign and private investors.

Other reforms, like single window clearance and GIS-enabled land bank, have also been implemented.

In May 2021, the India-UK “Enhanced Trade Partnership” was announced. This comprehensive free trade agreement will boost bilateral ties between the two countries and encourage greater investments from the UK.

In October 2021, 100% FDI was approved by the government in the telecom sector. This includes all telecom services and infrastructure providers. Their bank guarantees for licensing agreements were also reduced to 20%.

In 2022, the government is expected to introduce policies as part of the Space Activity Bill. This will attract extensive FDI inflows into the Indian space sector.

Impact on India’s Growth

In recent years, the government has relaxed FDI norms across several sectors, including defence, PSU, energy, stock exchanges and more.

Foreign companies investing in India benefit from technical expertise and lower wages, which helps India generate employment.

It enables speedy infrastructure development, spurs agricultural productivity and boosts the country’s export performance.

FDI is also a crucial aspect in mobilising India’s forex reserves. The Reserve Bank of India (RBI) has greater flexibility as a result. With increased forex reserves, the central bank can keep forex rates stable and enable favourable economic conditions for the country’s growth. FDI has also been instrumental in driving India’s climate goals.

The renewable energy sector attracted FDI worth over $1.18 billion in the first 9 months of FY 2021-22.

On the whole, FDI fosters competitiveness and enables the entry of more products and services into the market for consumers. This, in turn, spurs the development of the nation.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times.)