India Emerging As A Preferred FDI Destination For Manufacturing

India attracted massive foreign investments in the manufacturing sector with FDI equity flows of $21.34 billion in FY 2021-22.

Context: Data released by Commerce and Industry Ministry revealed that there was a whopping 76 per cent year-on-year increase from the $12.09 billion of FDI flows in the previous fiscal of 2020-21.

• 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.

• According to the 2022 UNCTAD World Investment Report, India went up once position to seventh place among the top 20 host economies for 2021.

Investment sources: Singapore and the US were India’s two highest sourcing nations in total FDI equity flows in FY 2021-22.

• Singapore accounted for 27.01 per cent of the FDI.

• The US was second with 17.94 per cent.

• Mauritius, the Netherlands, and Switzerland took the third, fourth, and fifth places.

Investment into states: Karnataka garnered the most with 37.55 per cent of the FDI inflow, followed by Maharashtra with 26.26 per cent, Delhi with 13.93 per cent, Tamil Nadu with 5.10 per cent, and Haryana with 4.76 per cent.

Investments in various sectors boosted FDI; this included 108 projects this year, compared to 20 projects on average for the last 10 years.

• Projects related to renewable energy were the most lucrative with 23 such projects.

• Other large projects included the construction of a steel and cement plant for $13.5 billion by Arcelormittal Nippon Steel (Japan) and a new car manufacturing facility by Suzuki Motor (Japan) for $2.4 billion.

• Computer software and hardware industry received the highest FDI equity inflow during FY 2021-22 with a share of 24.60 per cent, and the automobile industry was third 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 accounted for 12.13 per cent share.

The R&D sector stood out, with India netting $34.36 billion FDI equity inflow in this sector during calendar year 2021. This is 516 per cent higher on a year-on-year basis from the $55.77 million in 2020.

• Karnataka is the top FDI equity recipient state in R&D during calendar year 2021, followed by Telangana and Haryana.

• Telangana, Karnataka, Haryana, Andhra Pradesh, and Tamil Nadu registered growth of more than 250 per cent during 2021, as compared to 2020.

• Singapore is the top investing country in R&D in 2021 with 40 per cent share of the total FDI equity.

• Germany stood second with 35 per cent share; the US, third, with 11 per cent.

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

The Indian government’s work with 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 are yielding rich dividends.

Manufacturing sectors like defence, telecom, pharmaceuticals, construction, and services like retail trading, e-commerce civil aviation, insurance, and financial services have seen sizable growth in investments.

Bottom line: India's Aatmanirbhar Bharat vision, along with several incentives provided to manufacturers, is clearly yielding results. More such encouraging performance can be expected in the future too.