Foreign Direct Investment or FDI is when some organization invests in some other country. FDI is one of the important ways for developing countries to enhance their economy and give that a push. FDI in India is one of the essential factors of growing economic globalization. Foreign direct investment (FDI) is a primary source of non-debt financial resources for India’s economic development, in addition to being a demanding driver of economic growth. Foreign companies invest in India to take advantage of lower salaries and unique investment benefits such as tax breaks, among other things. It also involves creating jobs in a country where foreign investments are made.
Foreign capital continues to come into India thanks to the Indian government’s favorable policy regime and thriving economic environment. In recent years, the government has taken several steps, including loosening FDI restrictions in defense, PSU oil refineries, telecommunications, electricity exchanges, and stock exchanges.
According to the Department for Promotion of Industry and International Trade (DPIIT), Between April 2000 and December 2020, FDI equity inflow into India totaled $521.47 billion, suggesting that the government’s efforts to improve ease of doing business and reduce FDI regulations have paid off. As a result, inflows of FDI equity into India were US$ 51.47 billion in 2020-21. Between April 2020 and December 2020). The computer software and hardware sector received the most FDI equity inflows of US$ 24.39 billion in 2020-21, followed by building (infrastructure) activities (US$ 7.15 billion), service sector (US$ 3.86 billion), and trading (US$ 2.14 billion).
WHAT LIES NEXT?
A survey revealed that India is one of the top choices among foreign investors, and soon, it will attain the 3rd rank among top global FDI destinations. According to the poll, almost 80% of respondents intend to invest globally in the next 2-3 years. India is one of the top three desirable destinations for them in terms of capacity expansion and digital transformation. Research and development, as well as change, make India a suitable choice among investors.
India has a robust GDP, unrivaled market access, a large labor force (demographic dividend), a reform-oriented government, and abundant natural resources in comparison to competing jurisdictions. These offer international investors a variety of investment options and the potential to establish thriving value chains. Only within India do they have their own backward and forward links.
The recent spike in FDI inflows speaks about the positive effects of the reforms made by the government. For investors, a renewed focus on infrastructure and faster clearances are critical. 26% of enterprises urge a quicker turnaround time for value-added products for regional/global commerce in terms of trade policy. While 24 percent believe that cargo handling facilities at ports/docks are critical, situations of Airports and land customs stations must be improved.
The FDI to GDP ratio is predicted to rise dramatically by 2025, thanks to recent structural changes, increased FDI limits in many industries, and the government’s Atmanirbhar Bharat policy. If India succeeds in boosting the FDI to GDP ratio to between 3% and 4% by 2025, it may expect to attract USD 120 billion to USD 160 billion in FDI annually.