Latest Data Analysis on Investment Landscape
With the Russia-Ukraine conflict, lingering effects of the COVID-19 pandemic, and other economic challenges affecting the world economy, India remains a bright spot. As global supply chains contemplate diversifying their presence out of China, India’s vast consumer market, favorable policy environment, and advancements in digital technology make it an attractive investment destination and an emerging manufacturing hub.
This article delves into the recent trends in foreign direct investment (FDI) into India, with a focus on the top states and sectors receiving the highest FDI inflow in 2022.
Over the last decade, India has experienced an average GDP growth rate of 5.5 percent, reflective of its aggressive economic expansion. With a thriving population of 1.4 billion, India is well-positioned to seize commercial leadership in the current decade, buoyed by impressive economic growth and a flourishing stock market that could propel it to become the world’s third-largest economy by 2030. These factors have created unparalleled opportunities for growth in a country that recently overtook China as the world’s most populous nation.
With this growth, India is emerging as a major player in the global economy, presenting a unique opportunity for investors and businesses alike. The country’s unique attributes, such as its enabling policy landscape, vast consumer markets, and distinctive digital infrastructure, are making it an attractive destination for investment.
By 2031, India is projected to drive one-fifth of global growth, propelled by the convergence of trends such as global offshoring capabilities, digital innovation, and energy transition.
Advantage India
India’s advantageous demography and steady growth trajectory make it an appealing destination for foreign investment. In the last two decades (April 2000 – December 2022), India has attracted over US$904 billion in total FDI.
Despite the Indian government’s restrictions on FDI from countries that share land borders with India, such as China, the country received a record FDI inflow of approximately US$84.8 billion in the fiscal year (FY) 2022, including US$7.1 billion in FDI equity inflows in the services sector.
In FY 2023, there was a slight drop in FDI due to various factors, including the ongoing conflict between Russia and Ukraine, changes in US monetary policy, and other global uncertainties.
However, according to the 2023 Economic Survey, a rebound in incoming FDI is expected. This can be attributed to the sectoral production-linked incentive (PLI) schemes, growth prospects in tier-2 and tier-3 cities, and new investment facilitation measures like the National Single-Window System (NSWS), which streamlines the approval and clearance process for investors, entrepreneurs, and businesses. Other factors pushing India’s growth trajectory forward include high-tech industrial development, market size, and advancements in the digital and technology ecosystem.
How much FDI did India receive in 2022?
According to the Department for Promotion of Industry and Internal Trade (DPIIT), India’s FDI equity inflows reached US$52.34 billion in 2022, marking an increase from the US$51.34 billion recorded in 2021 but falling short of the US$64.68 billion recorded in 2020.
During the first three quarters of FY 2023 (April 2022 – December 2022), India’s total FDI inflow, comprising equity inflows, reinvested earnings, and other capital, amounted to US$55.27 billion. This figure represents a decrease from the US$60.33 billion recorded during the corresponding period of FY 2022 (April 2021 – December 2021).
Top FDI recipient sectors in India in 2022
In the first three quarters of FY 2023, foreign investors showed keen interest in multiple sectors in India, with the highest FDI inflows seen in computer software and hardware, attracting investments worth US$8.06 billion. The services sector also received significant foreign investment, totaling US$6.55 billion, covering financial, banking, insurance, and business services.
Additionally, the trading sector received investments worth US$4.14 billion, followed by drugs and pharmaceuticals (US$1.81 billion), chemicals (US$1.51 billion), the automobile industry (US$1.27 billion), and construction (infrastructure) activities (US$1.22 billion).
Top investor countries in India in 2022
Between April to December 2022, Singapore accounted for maximum inward FDI in India at US$13.07 billion, followed by the US (US$4.95 billion), Mauritius (US$4.73 billion), UAE (US$3.10 billion), and the Netherlands (US$2.15 billion).
Other top countries in terms of FDI equity inflow in India during the first three quarters of FY 2023 include UK, Japan, Cyprus, Cayman Islands, and Germany.
From April 2000 to December 2022, Mauritius was the top source of FDI equity inflow into India, accounting for 26 percent of investments worth US$162.47 billion. Singapore emerged as the second largest investor, contributing 23 percent of the investments in India during this period – valued at US$144.04 billion.
The US accounted for nine percent of the FDI equity inflow, followed by the Netherlands (seven percent), Japan (six percent), and the UK (five percent). The UAE, Germany, Cyprus, and the Cayman Islands each accounted for the remaining two percent.
|
Top Investing Countries’ FDI Equity Inflow into India (US$ Million) |
|||||
|
Country |
FY 2021 |
FY 2022 |
FY 2023 |
Cumulative equity inflow |
Percentage share |
|
Mauritius |
5,639 |
9,392 |
4,731 |
1,62,473 |
26% |
|
Singapore |
17,419 |
15,878 |
13,077 |
1,44,044 |
23% |
|
USA |
13,823 |
10,549 |
4,957 |
59,108 |
9% |
|
Netherland |
2,789 |
4,620 |
2,157 |
43,417 |
7% |
|
Japan |
1,950 |
1,494 |
1,430 |
38,373 |
6% |
|
UK |
2,116 |
1,657 |
1,608 |
33,746 |
5% |
|
UAE |
4,203 |
1,032 |
3,101 |
15,326 |
2% |
|
Cayman Island |
2,799 |
3,818 |
624 |
14,776 |
2% |
|
Germany |
667 |
728 |
350 |
13,941 |
2% |
|
Cyprus |
386 |
233 |
1,154 |
12,521 |
2% |
Leading Indian states attracting FDI in 2022
According to data from the DPIIT, Maharashtra and Karnataka and were the frontrunners in attracting FDI inflows during the first three quarters of FY 2023 (April-December). Maharashtra emerged as the top recipient of FDI with a total of US$10.76 billion, followed by Karnataka (US$8.77 billion), Delhi (US$6.11 billion), and Gujarat (US$4.14 billion).
An analysis of the period from October 2019 to December 2022 indicates that Maharashtra was the most preferred state for FDI, accounting for 28 percent (US$49.93 billion) of the total investments received in the country. Karnataka, Gujarat, and Delhi followed with 24 percent (US$42.80 billion), 17 percent (US$31.32 billion), and 13 percent (US$23.77 billion), respectively.
India’s liberal investment climate
Most sectors in India allow FDI through the automatic route. However, in areas such as telecom, media, pharmaceuticals, and insurance, foreign investors must obtain government approval. For investments made under the government approval route, foreign investors must obtain prior clearance from the respective ministry or department. In contrast, investments made under the automatic route only require the investor to inform the Reserve Bank of India (RBI) after the investment is made.
There are currently nine sectors in which FDI is prohibited in India, including lottery, gambling and betting, chit funds, Nidhi company, real estate business, and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.
About Us
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in in India.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.
