Historical Trend of India’s FDI Inflows

Countrywise & Sectorwise FDI Inflows

Introduction

In this article, we will discuss Historical Trend of India’s FDI Inflows, the trend of countrywise and sectorwise FDI equity inflows in India. In our earlier article, we have discussed what is FDI in detail.

FDI Equity Inflows in India

• Foreign Direct Investment (FDI) is a critical driver of economic growth. FDI Equity Inflow is a major source of non-debt financial resource for the economic development of India.
• India has emerged as the preferred destination for many foreign international enterprises due to constructive factors such as high economic growth, fast population growth, English speaking people, relatively lower wages and special investment privileges such as tax exemptions, etc.
• Thus, the Indian government’s favourable policy regime and robust business environment have 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.
• FDI helps in achieving technical knowledge transfer and generating employment.

Historical Trend of India’s FDI Inflows (Yearly & Monthly)

First let us look at the Historical trend of India’s FDI inflows from April 2000 to March 2019.

HISTORICAL Yearly FDI INFLOWS IN INDIA

It can clearly be seen that the FDI inflows to India has increased in the last 19 years with only dip in the years 2010 and 2013.

HISTORICAL Monthly FDI INFLOWS IN INDIA

Country-wise FDI Equity Inflows

• Top 10 investing FDI investing countries in India along with their respective FDI contribution in India’s FDI Inflows, are represented in the above charts.
• In the picture above, Mauritius has been the top contributor for FDI equity inflows. Mauritius has contributed approximately 32% of the total FDI Equity Inflows to India from April 2000 to March 2019.
• Now, you must be curious about the fact that Mauritius has been the country with maximum FDI inflow. The reason for the following is:

1. The main reason behind is the Double taxation avoidance agreement between India and Mauritius. According to the treaty between India and Mauritius, capital gains can only be taxed in Mauritius.
2. The treaty is said to have been misused by many Indian and multinational companies to avoid paying tax or to route illicit funds. 

Sector-wise FDI Equity Inflows

• Lets look at the sectors that has received the maximum FDI equity infows from April 2000 to March 2019.
• Sectoral analysis shows us which sectors in India are most attracted to foreign FDI. Sectors getting most FDI are the strongest and play a major part in the growth of the economy.
• Sectors getting maximum FDI also contribute maximum to the GDP of the country and therefore to the growth of the nation.

• The above picture shows the top sectors attracting maximum FDI investment.
• It shows that Services sector has attracted the maximum FDI that is approximately equal to 18%. Services sector includes Financial, Banking, Insurance, Non-Financial / Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis.
• Other sector having FDI investments are Computer Software and Hardware, Telecommunications, Construction, Trading etc.

Impact of INcrease in FDI on Indian Economy

• Having looked at the countries that has invested in India and sectors that has attracted maximum FDI, let us now look at the impact that the increase in FDI has made on the Indian economy.
• FDI is an additional investment to the domestic investment of the host country and thereby it can raise the investment level of the host economy. Also, it can add to the foreign exchange reserve of the host country and relieve foreign exchange shortages of the host economy.
• Apart from playing an important role in the growth story of the country FDI also has impacted various sectors for e.g., e-commerce.

The major positive impacts on e-commerce are:

1. Boost to the infrastructural development : Increased capital will help to establish supply chain, distribution system and warehousing.
2. Impetus to manufacturing sector : Growth in retail sector will have cascading effect in the manufacturing sector which will positively contribute to overall growth of economy and job creation.
3. More efficient supply chain management : Will reduce the need for middlemen leading to lower transaction costs, reduced overhead and reduced inventory and labour costs

In similar way, it has impacted every aspect of Indian economy and has helped us gather new technology, less cost and efficient working method.