Global Investment Trend Monitor Report
India was among the top 10 recipients of Foreign Direct Investment in 2019, attracting $49 billion in inflows, a 16 per cent increase from the previous year, driving the FDI growth in South Asia, according to the Global Investment Trend Monitor Report.
• FDI is a major driver of economic growth and a source of non-debt finance for the economic development of the country.
• Government has put in place an investor friendly policy on FDI, under which FDI up to 100% is permitted on the automatic route in most sectors/ activities.
• FDI policy provisions have been progressively liberalized across various sectors in recent years to make India an attractive investment destination.
• Some of the sectors include Defence, Construction Development, Trading, Pharmaceuticals, Power Exchanges, Insurance, Pension, Other Financial Services, Asset reconstruction Companies, Broadcasting and Civil Aviation.
• These reforms have contributed to India attracting record FDI inflows in the last 5 years. Total FDI into India from 2014-15 to 2018-19 has been US $ 286 billion as compared to US $ 189 billion in the 5-year period prior to that (2009-10 to 2013-14).
• In fact, total FDI in 2018-19 i.e. US $ 64.37 billion is the highest ever FDI received for any financial year.
The Global Investment Trend Monitor report compiled by United Nations Conference on Trade and Development (UNCTAD) states that the global foreign direct investment remained flat in 2019 at $1.39 trillion, a one per cent decline from a revised $1.41 trillion in 2018.
This is against the backdrop of weaker macroeconomic performance and policy uncertainty for investors, including trade tensions.
Developing economies continue to absorb more than half of global FDI flows.
South Asia recorded a 10 per cent increase in FDI to $60 billion and this growth was driven by India, with a 16 per cent increase in inflows to an estimated $49 billion. The majority went into services industries, including information technology.
India attracted an estimated 49 billion dollars of FDI in 2019, a 16 per cent increase from the 42 billion dollars recorded in 2018.
The FDI flows to developed countries remained at a historically low level, decreasing by a further six per cent to an estimated $643 billion
The FDI to the European Union (EU) fell by 15 per cent to $305 billion, while there was zero-growth of flows to United States, which received $251 billion FDI in 2019.
The United States remained the largest recipient of FDI, followed by China with flows of $140 billion and Singapore with $110 billion.
FDI in India
India mainly attracts investments from countries like Mauritius, Singapore, Japan, the U.K., the Netherlands, the U.S., Germany, Cyprus, France, and the U.A.E.
The sectors that received maximum FDI include services, computer hardware and software, construction development, trading, automobile, pharmaceuticals, chemicals, and power.
India received $37.3 billion capital inflow in 2017-18 as compared with $36.3 billion in the previous fiscal. During the 2015-16, the country received $36.06 billion.
India received a $27.2 billion foreign investment in the first half of 2019 and the pace is said to have sustained thereafter.
FDI Reforms and Benefits
In the coal sector, for sale of coal, 100% FDI under automatic route for coal mining activities including associated processing infrastructure will attract international players to create an efficient and competitive coal market.
Further, manufacturing through contract contributes equally to the objective of Make in India. FDI, now being permitted under automatic route in contract manufacturing, will be a big boost to Manufacturing sector in India.
Easing local sourcing norms for FDI in Single Brand Retail Trading (SBRT) will lead to greater flexibility and ease of operations for SBRT entities, besides creating a level playing field for companies with higher exports in a base year.
Permitting online sales prior to opening of brick and mortar stores brings policy in sync with current market practices. Online sales will also lead to creation of jobs in logistics, digital payments, customer care, training and product skilling.
India is optimistic of continuing to be one of the world’s favourite Foreign Direct Investment (FDI) destinations in 2020 on the back of the government’s liberalised norms.
Despite a slowdown in the global economy, foreign investment inflows have not been impacted.
The healthy growth in the overseas investments is proving that there is a lot of optimism and enthusiasm about India as a foreign investment destination.
With the ongoing policy reforms in sectors ranging from single brand retail trading, civil aviation, real estate broking service and simplification of legal and regulatory system, India is improving its ranking in the World Bank’s Ease of Doing Business global ranking.
To ensure the revival doesn’t fade, the government must undertake the following steps:
o Enforce a tighter control regime and constantly monitor all mechanisms to ensure that there are no stutters in the system.
o Take decisive punitive actions against defaulters to send a strong message to global investors that the watchdog is alive and kicking.
o Provide more benefits and incentives, and easier processes to seek larger foreign investments. While the improvement in the ease of doing business ranking is a big positive, the government has to maintain a consistent upward learning curve and communicate new evolutionary developments to the world.
o Widen investment avenues by bringing the benefits of organisation to more real estate sub-asset classes such as rental housing development, student housing and senior citizen living.
o So far, India has not been able to take advantage of this ongoing relocation of production facilities out of China. But it should gradually facilitate foreign firms setting up manufacturing bases in India, providing a boost to both employment and exports.
Types of Foreign Direct Investment
Foreign direct investments are commonly categorized as being horizontal, vertical or conglomerate.
A horizontal direct investment refers to the investor establishing the same type of business operation in a foreign country as it operates in its home country, for example, a cell phone provider based in the United States opening stores in China.
A vertical investment is one in which different but related business activities from the investor's main business are established or acquired in a foreign country, such as when a manufacturing company acquires an interest in a foreign company that supplies parts or raw materials required for the manufacturing company to make its products.
A conglomerate type of foreign direct investment is one where a company or individual makes a foreign investment in a business that is unrelated to its existing business in its home country. Since this type of investment involves entering an industry in which the investor has no previous experience, it often takes the form of a joint venture with a foreign company already operating in the industry.