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Last updated: Aug, 2020

About FDI in India

Introduction

Apart from being a critical driver of economic growth, Foreign Direct Investment (FDI) has been a major non-debt financial resource for the economic development of India. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges like tax exemptions, etc. For a country where foreign investment is being made, it also means achieving technical know-how and generating employment.

The Indian Government’s favourable policy regime and robust business environment has ensured that foreign capital keeps flowing into the country. The Government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.

Market size

According to Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 469.99 billion during April 2000 and March 2020, indicating that Government's effort to improve ease of doing business and relaxing FDI norms has yield results.

FDI equity inflow in India stood at US$ 49.97 billion in 2019-20. Data for 2019-20 indicates that service sector attracted the highest FDI equity inflow of US$ 7.85 billion, followed by computer software and hardware at US$ 7.67 billion, telecommunications sector at US$ 4.44 billion, and trading at US$ 4.57 billion.

During 2019-20, India received the maximum FDI equity inflow from Singapore (US$ 14.67 billion), followed by Mauritius (US$ 8.24 billion), Netherlands (US$ 6.50 billion), USA (US$ 4.22 billion) and Japan (US$ 3.22 billion).

Investments/ Developments

Some of the significant FDI announcements made recently are as follows:

On August 21, 2020, the Government of Singapore announced investment of Rs 450 crore (US$ 63.84 million) in the qualified institutional placement (QIP) offering of mall developer Phoenix Mills Ltd.

On August 14, 2020, Israel-based Coralogix, provider of machine-learning based log analytics and monitoring solution, announced a strategic expansion into India with a commitment to invest over US$ 30 million in the next five years.

Between April 23 and July 16, 2020, Jio Platforms Ltd. sold 25.24 per cent stake worth Rs 1.52 trillion (US$ 21.57 billion) to various global investors from separate deals involving Facebook, Silver Lake, Vista, General Atlantic, Mubadala, Abu Dhabi Investment Authority (ADIA), TPG Capital, L. Catterton, Public Investment Fund (PIF), Intel Capital, Qualcomm Ventures and Google. This is the largest continuous fundraise by any company in the world.

In May 2020, Philips, Dutch health tech and consumer electronics company, announced its plan to invest Rs 250-300 crore (US$ 35.47-42.56 million) to boost its manufacturing and R&D facilities in India.

In January 2020, Amazon India announced investment of US$ 1 billion for digitising small and medium businesses and creating one million jobs by 2025.

In January 2020, Mastercard announced its plans to invest up to US$ 1 billion in India over the next five years to double its research and development effort in the Indian market.

In October 2019, French oil and gas giant, Total S.A., acquired 37.4 per cent stake in Adani Gas Ltd for Rs 5,662 crore (US$ 810 million), making it the largest FDI in India’s city gas distribution (CGD) sector.

In August 2019, Reliance Industries (RIL) announced one of India's biggest FDI deals with Saudi Aramco to buy a 20 per cent stake in Reliance's oil-to-chemicals (OTC) business at an enterprise value of US$ 75 billion.

Government Initiatives

In May 2020, Government increased FDI in defence manufacturing under the automatic route from 49 per cent to 74 per cent.

In April 2020, Government amended existing consolidated FDI policy for restricting opportunistic takeovers or acquisition of Indian companies from neighboring nations.

In March 2020, Government permitted non-resident Indians (NRIs) to acquire up to 100 per cent stake in Air India.

In December 2019, Government permitted 26 per cent FDI in digital sectors.

In August 2019, Government permitted 100 per cent FDI under the automatic route in coal mining for open sale (as well as in developing allied infrastructure like washeries).

In Union Budget 2019-20, the Government of India proposed opening FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders.

100 per cent FDI is permitted in insurance intermediaries.

As of February 2019, the Government of India has been working on a road map to achieve its goal of US$ 100 billion worth of FDI inflow.

In February 2019, the Government of India released the Draft National E-Commerce Policy to encourage FDI in the marketplace model of E-commerce. Further, it stated that the FDI policy for E-commerce sector was developed to ensure a level playing field for all participants.

Government of India had been planning to consider 100 per cent FDI in insurance intermediaries in India to give a boost to the sector and attract more funds.

In December 2018, the Government of India revised FDI rules related to E-commerce. As per the revised rules, 100 per cent FDI was allowed in the marketplace-based model of E-commerce. Also, sales of any vendor through an E-commerce marketplace entity or its group companies was limited to 25 per cent of the total sales of such vendor.

Road ahead

India is going to be the most attractive emerging market for global partners (GP) investment for the coming 12 months as per a recent market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA).

Annual FDI inflow in the country is expected to rise to US$ 75 billion over the next five years as per the report by UBS.

The Government of India is aiming to achieve US$ 100 billion worth of FDI inflow in the next two years.

Note: Conversion rate used for June 2020, Rs 1 = US$ 0.01324

References: Media Reports, Press Releases, Press Information Bureau, Press Trust of India, RBI, Department for Promotion of Industry and Internal Trade (DPIIT)

https://dipp.gov.in/sites/default/files/FDI_Factsheet_March20_28May_2020.pdf