How Much FDI Did India Receive in 2020? A Look at the Latest Data

Posted by Written by Naina Bhardwaj Reading Time: 7 minutes

FDI into India reached US$81.7 billion in FY 2020-21, as per the country’s official sources. Meanwhile, the World Investment Report 2021, released on June 21 by UNCTAD, states that India was the fifth largest FDI recipient in the world in 2020, with its incoming FDI rising 27 percent over that in 2019, and driven by ICT investments.

Both data sets indicate that India is on a long-term growth trend and remained an attractive and viable investment destination for global investors last year despite the country observing multiple regional lockdowns and corporate recessionary trends due to the pandemic.

Key factors pushing India’s growth trajectory forward include high-tech industrial development, market size, and advancements in the digital and technology ecosystem.

Foreign direct investment (FDI) into India registered a new high in the financial year (FY) 2020-21, with total inward FDI amounting to US$81.72 billion, according to government estimates. Total FDI, inclusive of equity, capital, and re-invested earnings, rose 10 percent against the FDI received in the previous fiscal, at US$74.39 billion.

According to the federal government, this increase in FDI inflow can be attributed to various facilitative measures and reforms undertaken by authorities to make India a preferred investment destination globally. Total FDI inflow into India grew at a compound annual growth rate (CAGR) of six percent between FY 2015-16 to FY 2019-20.

Meanwhile, The World Investment Report 2021, published by the UN Conference on Trade and Development (UNCTAD), released on Monday, June 21 (see here), stated that India recorded a 27 percent increase in its FDI received in 2020, compared with 2019, making it the fifth largest FDI recipient in the world.

How much FDI did India receive in FY21?

According to the Indian government, FDI equity inflow contributed to US$59.64 billion out of the total US$81.72 billion that India received in FY21. This inward FDI equity showed a 19 percent growth over the previous fiscal, which stood at US$49.98 billion. A major proportion (US$51.47 billion) of this inflow was received during the first nine months of FY21, that is from April to December 2020, with the highest surge recorded in August 2020.

As per UNCTAD’s June report, India received US$64 billion in 2020, up from US$51 billion in 2019, driven by acquisitions in the information and communication technology (ICT) industry. This is understandable as the pandemic created unprecedented demand for digital infrastructure and services, resulting in targeted greenfield project investments across the world. In India, this included a US$2.8 billion investment by Amazon into the country’s ICT industry.

Who were the top investor countries in India in FY21?

In FY21, Singapore emerged as India’s top foreign investor, responsible for FDI equity amounting to US$15.71 billion during April-December 2020. In total, Singapore contributed to 29 percent of India’s FDI inflow.

The US was the second highest investor in India, accounting for a 23 percent share in the FDI received. This incoming FDI equity amount from the US was a 227 percent rise when compared to the preceding financial year.

Mauritius became India’s third largest investor in FY21, with a nine percent share. A look at cumulative FDI inflow figures from April 2000 to December 2020, however, shows that Mauritius has been the largest contributor of FDI equity inflow into India for the last two decades. Other leading investor countries in FY21 included the UAE, Cayman Islands, Netherlands, Japan, UK, and Germany.

In terms of percentage increase in FDI received in FY21, over the previous fiscal, Saudi Arabia became a top investor, with an investment of US$2,816.08 million in FY21 as against US$89.93 million in FY20. The UK also increased its share of FDI equity into India by 44 percent, when compared to the previous fiscal.

Which were the top FDI recipient sectors in India in FY21?

Computer software and hardware emerged as the top sectors attracting the maximum share of FDI equity inflow, at 44 percent, in FY21. Between April to December 2020, FDI equity inflow in this sector amounted to US$24.4 billion, recording a four-fold jump from FY 2018-19 when the figure was around US$6.4 billion. In FY20, FDI into this sector was US$7.7 billion.

Multiple factors like accelerated digitalization, augmented use of artificial intelligence (AI) to overcome barriers set by the pandemic, and increased policy focus on manufacturing in India have contributed to this impressive rise in foreign investment. The newly introduced production linked incentive (PLI) schemes, aimed to boost export-oriented investments, should accelerate this trend.

Other leading sectors that were attractive to investors in FY21 were construction (infrastructure) activities, which received 13 percent share of FDI equity inflow, and the services sector with an eight percent share. Finally, promising sectors recording more than a 100 percent jump in equity in FY21 were rubber goods, retail trading, drugs and pharmaceuticals, automobile, and electrical equipment.

Sectors that saw the steepest decline in incoming FDI inflow compared to the previous fiscal are telecommunications (-94 percent) and hotel and tourism (-84 percent). While FDI into the telecommunications sector amounted to US$4.44 billion in FY20, it dropped to a mere US$357 million in the first nine months of FY21.

The World Investment Report 2021 notes: “Amid India’s struggle to contain the COVID-19 outbreak, robust investment through acquisitions in ICT (software and hardware) and construction bolstered FDI. Cross-border M&As surged 83 per cent to $27 billion, with major deals involving ICT, health, infrastructure and energy. Large transactions included the acquisition of Jio Platforms by Jaadhu (a subsidiary of Facebook (United States)) for $5.7 billion, the acquisition of Tower Infrastructure Trust by Brookfield (Canada) and GIC (Singapore) for $3.7 billion and the sale of the electrical and automation division of Larsen & Toubro India for $2.1 billion. Another megadeal – Unilever India’s merger with GlaxoSmithKline Consumer Healthcare India (a subsidiary of GSK United Kingdom) for $4.6 billion – also contributed.”

What were the leading Indian states attracting FDI in FY21?

The top Indian states receiving FDI equity were Gujarat (37 percent), Maharashtra (27 percent), and Karnataka (13 percent), followed by Delhi and Tamil Nadu. These states collectively accounted for 92 percent share of India’s total equity inflow in FY21 (April-December). In FY20, this value had stood at 81 percent.

Gujarat remained the top investment destination in India for the fourth consecutive year, receiving US$30.23 billion in FY21, despite the pandemic. Majority of the FDI equity was directed towards computer software and hardware (94 percent) and construction activities (two percent).

In fact, 78 percent of the total FDI equity received by India was directed to Gujarat, and this is attributed to the state’s re-engineered strategy for industrial growth.

Gujarat boasts of resilient logistics networks and industrial infrastructure, backed by technological advancements across the supply chain. Delhi, on the other hand, experienced a slowdown in terms of FDI inflow when compared to previous years.

Growth drivers shaping India’s increasing investment appeal

India recorded its highest-ever FDI inflow in FY21, even as global outbound investment momentum has significantly slowed down. China is the only other country that has shown growth in foreign investment. In India, this growth has been captured by the digital, energy and infrastructure sectors. For India, the goals of securing manufacturing self-reliance, participating in global value chains, and reducing trade dependencies requires greater foreign capital. It is no surprise then that state governments and federal policies are pushing to facilitate foreign investors through various incentives and inducements.

Ease of doing business

Investor friendly policies and focused reforms undertaken by both federal authorities and regional governments have improved India’s overall investment climate, reflected in its World Bank’s Doing Business ranking of 63 in 2020. This ranking is big improvement from 142 in 2014. Reforms like digitization of bureaucratic departments, such as incorporation and customs, single window for trade facilitation, digitization of land and property registration departments, and systemic efforts to streamline compliances and associated regulatory procedures have contributed to this feat.

Digital economy

India has made a visible commitment to digitize its economy with a widespread push for the adoption of newer competitive technologies in various sectors, including money and banking, finance, taxation, e-commerce, agriculture, rural development, and governance. On the 2020 World Digital Competitiveness Rankings by the International Institute for Management Development, Lausanne (Switzerland), India stood at 48. Factors like knowledge, technology, and future readiness in exploring more digital technologies contribute towards India’s ranking assessment. India has seen a sustained rise in telecommunications investment in the past few years, with 2020 being the anomaly.

Start-up hub

Amplified investment in technology infrastructure in India coupled with its vast and young talent base has made India one of the most conducive start-up ecosystems in the world. The 2020 Global Start-up Ecosystems Report (GSER) featured two Indian cities – Bengaluru (26th rank) and Delhi (36th rank) – on its list of the world’s most favorable ecosystems to build a globally successful start-up. Even on the Global Innovation Index (GII), published by WIPO, India has shown great strides by jumping from ranking 81 in 2015 to 48 in 2020.

Robust infrastructural and manufacturing base with improved connectivity

India has a diversified and competent base for undertaking manufacturing of all kinds of goods to meet requirements of all kinds of sectors, including heavy electrical equipment, power generation and transmission, etc. India is expected to become the world’s third-largest construction market by 2022. Initiatives like Housing for All, Smart Cities Mission, Sagarmala Project, AMRUT etc. have been aimed at facilitating a vision of ‘New India’, which is smart, technologically advanced, and developed. India is aggressively courting foreign investors to become a part of the vision and contribute to its realization through mutually beneficial partnerships. For example, through public-private partnerships (PPP) for the delivery of high-priority public utilities and infrastructure.

India has also announced the ambitious National Infrastructure Pipeline (NIP), covering both economic and social infrastructure projects. It is touted to be the first-of-its-kind initiative to provide world-class infrastructure across the country with energy, roads, railways and urban development projects being major beneficiaries.

FDI policy reforms across sectors

The federal government has announced several policy initiatives and FDI relaxations in multiple sectors, such as defense, public sector undertakings like oil refineries, telecom, power exchanges, insurance, and stock exchanges, among others.

A robust FDI policy is also in place. Key reforms undertaken by the government include implementation of the Goods and Services Tax (GST) since 2017 to establish a single market, introduction of the Insolvency and Bankruptcy Code in 2016, and consolidation of labor laws under four major codes (wages, industrial relations, social security, and occupational safety, health & working conditions).

The government has also introduced PLI schemes in 13 flagship sectors in India, to make these sectors globally competitive in terms of production capabilities and export viability. The incentives are provided on incremental sale of goods in target segments and they are set to attract significant foreign investment. Leading foreign companies like Samsung (electronics); contract manufacturers Foxconn Hon Hai, Wistron, and Pegatron (mobile manufacturing); Visicon, Vitesco, and AT&S (electronic components); and Siemens and Wipro GE (medical devices) have gotten approvals for manufacturing under respective PLI schemes.

Challenges for India in the near term

India remains a prominent international investment destination due to its inherent advantages – a huge market with a relatively younger population, democratic setup, investor friendly reforms, increased pace of urbanization, steady rise in rural consumption levels, and a sustained increase in disposable per capita incomes.

Nevertheless, the country has been hit hard by the pandemic, which has slowed down growth on some indices. Global investors will be watching to see how India stabilizes its economy following a brutal COVID wave and how it is able to implement vaccination programs and restore normalcy. These are areas where investors will need maximum reassurance from government authorities and clear results in the near term.

This article was originally published on June 1, 2021. It was last updated June 21, 2021.

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