Article 2b - 2021-22 - FDI in India

Article 2b: Recent changes in FDI norms
Investment climate in India has improved

considerably since the opening up of the
economy in 1991.
This is largely attributed to ease in FDI norms across sectors of the economy.
India, today is a part of top 100 club on Ease of Doing Business (EoDB). FDI
inflows in India stood at $45.15 bn in 2014-15 and have consistently increased
since then. Moreover, total FDI inflow grew by 65.3%, i.e. from $266.21 bn in
2007-14 to $440.01bn in 2014-21 and FDI equity inflow also increased by
68.6% from $185.03 bn during 2007-14 to to $312.05 bn (2014-21).
India has attracted total FDI inflow of $76.30 bn during April to March 2021. It
is the highest ever for the first ten months of a financial year and 19% higher as
compared 2019-20 ($62.72 bn). India is the fifth largest recipient of inflows in
the world.
Total FDI inflows in the country in the last 21 years (April 2000 -
March 2021) are $763.5 bn while the total FDI inflows received in the last
5 years (April 2014- September 2019) was $319 bn which amounts to nearly
50% of total FDI inflow in last 20 years.
During FY 2020-21, total FDI inflow of $58.37 bn, 22% higher as compared to
the first 8 months of 2019-20. FDI equity inflows received during April -
November 2020 is $43.85 bn which is 37% more compared to April -
November 2020 ($32.11 bn).
FDI equity inflow grows by 168% in the first three months of FY 2021-22
($17.57 bn) compared to the same corresponding period last year ($6.56
bn).
Apart from being a critical driver of economic growth, Foreign Direct

Investment (FDI) has been a major non-debt financial resource for the economic
development of India. Foreign companies invest in India to take advantage of
relatively lower wages, special investment privileges like tax exemptions, etc.
For a country where foreign investment is being made, it also means achieving
technical know-how and generating employment.
The Indian Government‟s favourable policy regime and robust business
environment has 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.
Market size
According to the Department for Promotion of Industry and Internal Trade
(DPIIT), FDI equity inflow in India stood at US$ 529.63 billion between April
2000 and March 2021, indicating that the government's efforts to improve ease
of doing business and relaxing FDI norms have yield results.
FDI equity inflow in India stood at US$ 59.64 billion between April 2020 and
March 2021. Data for 2020-21 indicates that the computer software and
hardware sector attracted the highest FDI equity inflow of US$ 26.15 billion,
followed by construction (infrastructure) activities (US$ 7.88 billion), services
sector (US$ 5.06 billion) and trading (US$ 2.61 billion).
Between April 2020 and March 2021), India received the highest FDI equity
inflow from Singapore (US$ 17.42 billion), followed by the US (US$ 13.82
billion), Mauritius (US$ 5.64 billion), the UAE (US$ 4.20 billion), Cayman
Islands (US$ 2.80 billion), the Netherlands (US$ 2.79 billion) and the UK (US$
2.04 billion).
In the same period, Gujarat received the highest FDI equity inflow of US$
21.89 billion, followed by Maharashtra (US$ 16.17 billion), Karnataka (US$
7.67 billion) and Delhi (US$ 5.47 billion).
Investments/ Developments
Some of the significant FDI announcements made recently are as follows:
 In FY21, total FDI inflow amounted to US$ 81.72 billion, a 10% YoY
increase.
 In April 2021, FDI inflow stood at US$ 6.24 billion, registering an increase
of 38% YoY.
 In June 2021, Urban Company, a home services marketplace, announced
that it has raised ~Rs. 1,857 crore (US$ 255 million) in a fund raiser round
led by Wellington Management, Prosus Ventures and Dragoneer.
 In April 2021, Amazon India launched the US$ 250 million „Amazon
Smbhav Venture Fund‟ for Indian start-ups and entrepreneurs to boost
technology innovations in the areas of digitisation, agriculture and
healthcare.
 In November 2020, Rs. 2,480 crore (US$ 337.53 million) foreign direct
investment (FDI) in ATC Telecom Infra Pvt Ltd. was approved by the
Union Cabinet.
 In November 2020, Amazon Web Services (AWS) announced to invest
US$ 2.77 billion (Rs. 20,761 crore) in Telangana to set up multiple data
centres; this is the largest FDI in the history of the state.
 Since April 2020, the government has received over 120 foreign direct
investment (FDI) proposals worth ~Rs. 12,000 crore (US$ 1.63 billion)
from China. Between April 2000 and September 2020, India received US$
2.43 billion FDI from China.
 In May 2021, Ernst & Young (EY) ranked India as the most attractive
solar markets for PV investments and deployments.
 In a press statement, Microsoft confirmed that it has also made a strategic
equity investment in Oyo, but didn‟t disclose the amount. A regulatory filing
showed last month that the Windows-maker had invested $5 million in the
Indian startup. Oyo will switch to Microsoft Azure for its cloud-based needs
and co-develop solutions with the American giant to “benefit patrons who
operate small and medium hotel and home storefronts,” the firms said. “As
part of this alliance, OYO will develop Smart Room experiences for
travelers on the OYO platform, such as premium and customized in-room
experiences for its guests. Using Microsoft‟s Azure IoT, the experience will
include self-check-in supported by a digital register of arrivals and
departures and self-Know Your Customer (KYC) along with IoT-managed
smart locks and virtual assistance,” the firms said.
Government Initiatives
In June 2021, the Finance Ministers of G-7 countries including the US, the UK,
Japan, Italy, Germany, France and Canada attained a historic contract on taxing
multinational firms; under this, the minimum global tax rate would be at least
15%. The move is expected to further boost foreign direct investments in the
country.
In May 2021, the Finance Ministry notified the final rules for foreign
investment limit (74%) in the insurance sector. This is expected to benefit 23
private life insurers, 21 private non-life insurers and seven specialised private
health insurance firms.
In December 2020, the government of Uttar Pradesh agreed to provide Samsung

Display Noida Private Limited with special incentives to set up a mobile and IT
display product manufacturing unit. Under the Central Government's scheme for
promotion of manufacturing electronic components and semiconductors
(SPECS), Samsung will also receive a financial incentive of Rs. 460 crore (US$
62.61 million). This project will develop a global export hub in Uttar Pradesh
and will help the state attract more foreign direct investments (FDI).
In December 2020, changes in the guidelines for the provision of Direct-to-
Home (DTH) services have been approved by the Union Cabinet, enabling
100% FDI in the DTH broadcasting services market.
There are nine sectors where FDI is prohibited and that includes lottery
business, gambling and betting, chit funds, Nidhi company, real estate business,
and manufacturing of cigars, cheroots, cigarillos and cigarettes using tobacco.
Road ahead
India is expected to attract foreign direct investments (FDI) of US$ 120-160
billion per year by 2025, according to CII and EY report. Over the past 10
years, the country witnessed a 6.8% rise in GDP with FDI increasing to GDP at
1.8%.
In terms of attractiveness, investors ranked India #3; ~80% investors have plans
to invest in India in the next 2-3 years, while ~25% reported investments worth
>US$ 500 million, the Economic Times reported.
India ranked43rd on the Institute for Management Development (IMD)‟s annual

World Competitiveness Index 2021. According to the IMD, India's
developments in government efficiency are primarily due to relatively stable
public finances (despite COVID-19-induced challenges) and optimistic
sentiments among Indian business stakeholders with respect to the funding and
subsidies offered by the government to private firms.
Note: Conversion rate used for June 2021 is Rs. 1 = US$ 0.013
References: Media Reports, Press Releases, Press Information Bureau, Press
Trust of India, RBI, Department for Promotion of Industry and Internal Trade
(DPIIT)
1. Discuss the advantages of FDI to a host country.

2. What is strategic investment? Explain the advantages in engaging in such
business arrangement stating the example from the article.
3. Discuss the importance of attracting higher FDI wake of the COVID-19
pandemic.
4. Name few sectors where government has recently liberalised FDI limit.
5. Discuss few reasons why foreign companies wish to invest in India. Bring
out the differences between FDI and FII? Comment on which type of
investment is vital in post pandemic economic recovery?

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Article 2b: Recent changes in FDI norms

Investment climate in India has improved

Apart from being a critical driver of economic growth, Foreign Direct

In December 2020, the government of Uttar Pradesh agreed to provide Samsung

India ranked43rd on the Institute for Management Development (IMD)‟s annual

1. Discuss the advantages of FDI to a host country.

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