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Indian Economy

FDI Inflows

  • 23 Sep 2021
  • 4 min read

Why in News

Foreign Direct Investment (FDI) inflows grew 62% during the first four months (April-July period) of current FY 2021-22 over corresponding period last year (2020).

  • India attracted a total FDI inflow of USD 27.37 billion during the four months.
  • In the FY 2020-21, India saw growth of 10% (to $82 bn) in FDI.

Key Points

  • FDI Equity:
    • FDI equity inflow grew by 112% in the April-July period of FY 2021-22 (USD 20.42 billion) compared to the year ago period.
  • Top Sectors:
    • The Automobile Industry has emerged as the top sector with 23% share of the total FDI Equity inflow followed by Computer Software & Hardware (18%) and Services Sector (10%) respectively.
  • Top FDI Destinations:
    • Karnataka is the top recipient state for the period with 45% share of the total FDI Equity inflows followed by Maharashtra (23%) and Delhi (12%).

Foreign Direct Investment

  • Definition:
    • FDI is the process whereby residents of one country (the home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).
      • It is different from Foreign Portfolio Investment where the foreign entity merely buys stocks and bonds of a company. FPI does not provide the investor with control over the business.
  • Three Components:
    • Equity capital: It is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
    • Reinvested earnings: It comprises the direct investors’ share of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested.
    • Intra-company loans: These refer to short- or long-term borrowing and lending of funds between direct investors (or enterprises) and affiliate enterprises.
  • Routes through which India gets FDI:
  • Government Measures to Promote FDI:

Source: PIB

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