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Which Sector Attracts the Highest FDI in India?

Which Sector Attracts the Highest FDI in India?

During the fiscal year 2020-21, India received $81.72 billion in foreign direct investment (FDI), the enormous amount ever. According to the updated figures from the commerce and industry ministry, this represents a 10% increase year over year.

According to the federal government, this growth in FDI inflow can link to several government-led facilitative policies and reforms to make India a preferred global investment destination. As a result, total FDI intake into India increased at a compound annual growth rate (CAGR) of 6% between FY 2015-16 and FY 2019-20.

The majority of this inflow (US$51.47 billion) happened in the first nine months of FY21, from April to December 2020, with the most significant increase in August 2020.

If we look upon different sectors, computer hardware and software were among the top industry, attracting the highest FDI in India. The FDI inflow was around 44% in this sector. From April to December 2020, FDI equity inflows into this industry were US$24.4 billion, a four-fold increase from FY 2018-19, when the figure was around US$6.4 billion. In FY20, FDI into this sector totaled $7.7 billion.

This rapid increase in foreign investment can be attributed to several factors, including faster digitalization, increased use of artificial intelligence (AI) to overcome technological restrictions, and more regulatory focus on manufacturing in India. In addition, the recently introduced production-linked incentive (PLI) systems will accelerate this trend.

Despite the lockdown, the IT and BPM industries were among the first to adapt to the remote work culture. More than 2 million IT professionals’ workers offered to work from home during a global epidemic.

Construction (infrastructure) activities received 13% of FDI equity inflow in FY21, while the services industry received 8%. On the other hand, rubber products, retail, drugs and pharmaceuticals, cars, and electrical equipment were among the promising sectors that saw an increase in inequality of more than 100% in FY21.

Given the government’s focus, especially after COVID-19, on making India a manufacturing hub and announcing many initiatives last year to improve the economy and exports, experts estimate the FDI flow to reach $50 billion in 2021 quickly. In addition, the Anti-China attitude also created more opportunities for money to flood in.

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