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Indian Economy

FDI Inflow Touches $82 Bn in FY21

  • 25 May 2021
  • 4 min read

Why in News

In the Financial Year 2020-21, India sees growth of 10% (to $82 bn) in Foreign Direct Investment (FDI). FDI equity investments rise 19% to $60 billion.

  • In 2019-20, India had received $74.39 billion in FDI, with almost $50 billion coming in the form of equity investments.

Key Points

  • Top Investors:
    • Singapore emerged as the top investor with almost a third of all investments, followed by the US which accounted for 23% of FDI and Mauritius from where 9% of the foreign capital flows originated.
  • Sharpest Growth from Saudi Arabia:
    • The sharpest growth among the top 10 FDI-origin countries was recorded from Saudi Arabia.
    • Investments jumped from $90 million in 2019-20 to $2.8 billion in 2020-21.
  • FDI Equity:
    • FDI equity flows from the US more than doubled during the year compared with 2019-20, while investments from the UK surged 44%.
  • Top FDI Destinations;
    • Gujarat was the top FDI destination in 2020-21, accounting for 37% of the foreign equity inflows, followed by Maharashtra (2nd) which got 27% of the equity inflows.
    • Karnataka (3rd) accounted for another 13% of the equity investments.
  • Top Sectors:
    • Computer software and hardware has emerged as the top sector during 2020-21 with about 44% share of the total FDI equity inflow.
    • These are followed by construction (infrastructure) activities (13%) and services sector (8%), respectively.

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 is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
    • Reinvested earnings comprise 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 or intra-company debt transactions 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: TH

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