India Done Well In Attracting FDIs; Foreign Investment Skewed in Terms of States, Sectors: Ind-Ra

edited by: Mohammad Haris

Last Update: December 31, 2022, 16:55 IST

India is among the top 10 (ranked 7th) FDI destinations globally.

India is among the top 10 (ranked 7th) FDI destinations globally.

From a sectoral perspective, the highest FDI flowed into the services sector, followed by the manufacturing sector.

India has done fairly well in attracting foreign direct investment (FDI) among emerging market economies. However, according to a report by India Ratings, the nature of FDI flows remains heterogeneous in terms of the countries from which they are originating and the states/regions in which they are being invested.

According to the World Investment Report 2022 of the United Nations Conference on Trade and Development (UNCTAD), India is among the top 10 (ranked 7th) FDI destinations globally.

India Ratings and Research said in the report, “Despite the significant increase in FDI inflows over the years, the nature of FDI flows in terms of the countries from where they are originating and the states/sectors in which they are being invested , they are quite odd.” ,

In 2014, India launched ‘Make in India’, a flagship program to facilitate investment in all sectors, but with a special focus on creating a world-class manufacturing sector. Attracting higher FDI in the manufacturing sector was linked to this effort, which was complemented by the Production Linked Incentive (PLI) scheme in 14 key manufacturing sectors in FY21.

“From a sectoral perspective, the highest FDI inflows followed the manufacturing sector (except computer hardware) during April 2000 to March 2014 as well as the services sector during April 2014 to March 2022. Whereas within services, FDI mainly flowed into trade, telecommunications, banking/insurance, IT/business outsourcing and hotels/tourism, within manufacturing it remained concentrated in sectors such as auto, chemicals, drugs and pharmaceuticals, metallurgy and food processing,” India Ratings said in its report. Said.

FDI in services increased from $80.51 billion during April 2000 to March 2014 to $153.01 billion during April 2014 to March 2022. During the same period, FDI in manufacturing increased from $77.11 billion to $94.32 billion. This shows that despite the government’s efforts to attract more investment in the manufacturing sector through the ‘Make in India’ campaign, FDI inflows are still tilted in favor of the services sector.

Ind-Ra said it believes this may be because doing business in the service sector is less complex in India than doing business in manufacturing. “This could also be the reason why most of the FDI coming into the manufacturing sector is not greenfield investment. However, computer software and hardware has fared well with FDI increasing to $72.7 billion during April 2014 to March 2022 from just $12.8 billion during April 2000 to March 2014. Such as Apple, Samsung, Flextronics and Nokia have announced major investments in India.”

Like sectors, FDI is also highly concentrated around a few states. Of the total FDI inflow of $146.7 per cent between October 2019 and March 2022, only four states attracted 83 per cent of FDI, namely Maharashtra at 27.5 per cent, Karnataka at 23.9 per cent, Gujarat at 19.1 per cent and Delhi at 12.4 per cent.

The remaining six states in the top-10 FDI destinations were Tamil Nadu, which accounted for 4.5 percent of total FDI, followed by Haryana at 3.7 percent, Telangana at 2.4 percent, Jharkhand at 1.9 percent, Rajasthan at 0.8 percent and West Bengal at 0.7 percent. Percent.

“The rest of India accounts for just 3.1 per cent of the total FDI. While there is no specific reason for the clustering of FDI around only a few states, Ind-Ra believes that this is probably due to the enabling conditions in these states. As a result, three distinct FDI corridors have emerged – NCR of Delhi in the north, Maharashtra-Gujarat in the west and Karnataka-Tamil Nadu-Andhra Pradesh-Telangana in the south,” India Ratings said.

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