India Rising As Preferred FDI Shore For Manufacturing, Equity Flows Surge 76 Per Cent YoY In FY22

India has signalled its rapid emergence as a preferred country for foreign investments in the manufacturing sector which attracted foreign direct investment (FDI) equity flows of $21.34 billion in financial year 2021-22, a whopping 76 per cent year-on-year increase from the $12.09 billion of FDI flows in the previous fiscal of 2020-21.

Battling the ongoing pandemic and global developments, India received the highest annual FDI inflows of $84.83 billion in FY 2021-22 overtaking the previous fiscal’s FDI of $81.97 billion and $74.39 billion received in FY 2019-20, as per Commerce and Industry Ministry data released on Thursday (28 July).

Singapore and USA lead the pecking order as India’s two highest sourcing nations in total FDI equity flows in FY 2021-22, with the former accounting for 27.01 per cent of the FDI and the USA 17.94 per cent, followed by Mauritius with a share of 15.98 per cent of the FDI, Netherland with 7.86 per cent and Switzerland 7.31 per cent, according to the data.

The latest trends also capture trends from more countries during FY 2021-22 with the FDI data being reported from 101 countries as compared to the 97 countries during the previous financial year.

Prior government approval or security clearance from MHA remains the norm for investments in sensitive sectors such as defence, media, telecommunication, satellites, private security agencies, civil aviation and mining, besides any investment from Pakistan and Bangladesh.

The state of Karnataka garnered a maximum 37.55 per cent of the FDI inflow followed by Maharashtra with 26.26 per cent, Delhi 13.93 per cent, Tamil Nadu 5.10 per cent and Haryana 4.76 per cent.

The robust capital flow trends amidst adverse geopolitical headwinds reflect India’s stronger global positioning which has, according to the 2022 United Nations Conference on Trade and Development (UNCTAD) World Investment Report, improved one position to move up to the seventh rank among the top 20 host economies for 2021.

Flows to India declined to $45 billion, says the UNCTAD report but received a shot by a flurry of new international project finance deals which boosted FDI in the country that included 108 projects, compared with 20 projects on average for the last 10 years.

The largest number of projects numbering 23 was in renewables while large projects included the construction in India of a steel and cement plant for $13.5 billion by Arcelormittal Nippon Steel (Japan) and the construction of a new car manufacturing facility by Suzuki Motor (Japan) for $2.4 billion.

The government’s transformative agenda of the National Single-Window System launched to offer a one-stop shop for approvals and clearances needed by investors, entrepreneurs and businesses and the move to allow FDI up to 100 per cent in non-critical sectors through the automatic route is yielding rich dividends across manufacturing sectors as defence, telecom and pharmaceuticals, construction and development and services like retail trading, e-commerce civil aviation, insurance and financial services.

A closer look at the FDI data shows computer software and hardware industry leading the top 5 sectors in receiving the highest FDI equity inflow during FY 2021-22 with a share of 24.60 per cent and the automobile industry at the third place with 11.89 per cent of the FDI.

The services sector led by financial, banking, insurance, non financial/business, outsourcing, R&D, courier, technology testing and analysis and others accounts for 12.13 per cent share, trading 7.72 per cent and construction including infrastructure activities received 5.52 per cent FDI equity flows.

The performance of the R&D business also stands out with India catching $34.36 billion FDI equity inflow in this sector during calendar year 2021 which is 516 per cent higher on a yoy basis from $55.77 million in CY 2020, according to Commerce Ministry figures.

It indicates a robust and growing R&D sector which would benefit the economy by driving innovation and increasing productivity with the government making way for FDI under 100 per cent automatic route subject to applicable laws/regulations, security and other conditionalities.

Karnataka is the top FDI equity recipient state in R&D during CY 2021 followed by Telangana and Haryana with Telangana, Karnataka, Haryana, Andhra Pradesh and Tamil Nadu showing growth of more than 250 per cent during CY 2021 compared to CY 2020.

Singapore is the top investing country in R&D during CY 2021 with 40 per cent share of the total FDI equity in this area followed by Germany with 35 per cent share and the USA with 11 per cent. Equity inflow from several countries like Germany, Mauritius, France, Singapore, Oman and the USA showed an increase of more than 200 per cent as compared to the previous 2020.

Daimler Truck Innovation Centre was the top recipient company in R&D during CY 2021 with 35 per cent share of the total FDI equity in R&D followed by Aragen Life Sciences Private taking up 34 per cent and Stelis Biopharma Private with 21 per cent.

According to UNCTAD, among developing economies, digital multinational enterprises (MNEs) targeted firms in India in a sizeable share of deals (7 per cent) because of its thriving tech start-up scene.

In developing economies, US MNEs targeted India in 8 per cent of the deals, mostly buying minority stakes to gain access to the market and to local innovative solutions, boosting the investment prospects of the R&D sector.

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