Foreign Direct Investment (FDI) in the country grew by 18 percent in 2017-18. India received FDI of 28.25 lakh crore rupees in FY 18 which is 4, 33,300 crore rupees more compared to the previous fiscal year, showed the RBI data on ‘Census on Foreign Liabilities and Assets of Indian Direct Investment Companies’. “FDI companies witnessed a substantial increase in other investment liabilities, largely due to the increase in trade credit,” said RBI. A total of 23,065 companies responded to the census by RBI and 20,732 of these received FDI or Overseas Direct Investment (ODI). The ODI received by companies increased by 5 percent to 5.28 lakh crore rupees.
Mauritius is the largest source of FDI in India and accounted for almost one fifth (19.7 percent) of the total FDI. Mauritius is followed by the US, the UK, Singapore and Japan. Indian companies invested the most in Singapore (17.5 percent) followed by the Netherlands, Mauritius and the US. The Manufacturing sector bagged the majority share of FDI followed by the ‘Information and communication services’ and ‘financial and insurance activities’.
Manufacturing is one of the sectors on which the Modi government was focused since its coming to power. To give a boost to manufacturing, the government launched the Make in India program on 25th September 2014, just 4 months after coming to power. Under the Make in India program, FDI policy was liberalized with 100% Foreign Direct Investment (FDI) being permitted in all 25 sectors, except for space (74%), defense (49%) and news media (26%). As a result, India emerged as the top destination globally for foreign direct investment (FDI) in 2015, surpassing the USA and China.
This greater inflow of investment is helping India make a strong manufacturing base which is necessary for any country with a large population. China, the closest to having a population as massive as India’s, depends on the economy to employ the vast majority of people because jobs in the service sector are limited and employ only highly skilled labor. India is growing into a big manufacturing hub of mobile phones since the Modi government came to power. There were only 2 mobile phone manufacturing factories in India, while today there are 120 factories.
FDI inflow in India surpassed that of China’s in 2018 with some mega deals like Walmart-Flipkart, and acquisitions by Unilever and Schneider Electric. Walmart’s $16 billion acquisition of a majority stake in Indian e-commerce company Flipkart has been best so far pushing the total FDI. Merger and acquisition(M&A) deals by end of this year totaled around 39.5 billion dollars while for China it was 33 billion dollars. The M&A deals in India witnessed exponential growth and more than doubled since last year, the total worth of the deals in 2017 was 18.6 billion dollars. China, on the other hand, recorded deals worth 32.5 billion dollars which is 80 percent of India’s total deal in 2017.
If one compares the relationship between FDI growth rate with that of GDP, one would come to the conclusion that, every 1% increase in FDI results in about 0.4-0.5% increase in GDP, though it depends on the country’s stage of development. So, the importance of FDIs in a developing nation can’t be stressed enough.
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