FDI Inflows

• 23 Sep 2021

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:
  
  • Automatic Route: In this, the foreign entity does not require the prior approval of the government or the RBI (Reserve Bank of India).
  • Government Route: In this, the foreign entity has to take the approval of the government.
    
    • The Foreign Investment Facilitation Portal (FIFP) facilitates the single window clearance of applications which are through approval route. It is administered by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.
• Government Measures to Promote FDI:
  
  • Factors such as favourable demographics, impressive mobile and internet penetration, massive consumption and technology uptake, played an important role in attracting the investments.
  • Launch of Schemes attracting investments, such as, National technical Textile Mission, Production Linked Incentive Scheme, Pradhan Mantri Kisan SAMPADA Yojana, etc.
    
    • The government has elaborated upon the initiatives under the Atmanirbhar Bharat to encourage investments in different sectors.
  • As a part of its Make in India initiative to promote domestic manufacturing, India deregulated FDI rules for several sectors over the last few years.

Source: PIB