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The upswing of the FDI Inflow in the Indian Economy

Vedika Znwar

Vedika ZnwarOct 23, 2021, 02:36 PM IST

The upswing of the FDI Inflow in the Indian Economy

India has attracted the highest ever total FDI inflow of US$81.72 billion during the financial year 2020-21, and it is 10% higher than compared to the last financial year 2019-20 (US$74.39 billion). 

Over the years, India has emerged as one of the fastest-growing economies globally and an attractive investment destination for various reasons - economic reforms, an expanding online consumer base, a listing of startups and China's crackdown on tech companies.

India is presently known as one of the most important players in the global economic landscape. The country is on a fast-paced growth and is expected to become a US$5 trillion economy by 2022.

India's gross domestic product (G.D.P.) at current prices stood at Rs. 51.23 lakh crore (US$694.93 billion) in the first quarter of FY22, as per the provisional estimates of gross domestic product for the first quarter of 2021-22.

The ease of doing business in India has improved. After deciding to discontinue the annual ' Doing Business ' report, India could attract more manufacturing companies, said the World Bank, because of data collection irregularities, especially from China.

A host of factors has enabled this growth, including a highly developed financial system, infrastructure requirement and proactive Government initiatives. Domestic and foreign investment has made an impact on the country's growth. The United States-based companies have become one of the key foreign investors for India in recent times. Companies like Amazon, Apple, Facebook, Google, Microsoft, Walmart, etc., are planning huge investment stakes in India.

Indian startups, Jio help the tech giants set funding record amid Covid The overall 2020 funding by the giants globally stood at $16.7 billion across 22 deals surpassing $7.6 billion investment in 2019, making 2020 a record year despite the Coronavirus outbreak.

U.S. e-commerce giant Amazon has pumped in over Rs 11,400 crore (about USD 1.5 billion) during FY2019-20 across its marketplace, payments and wholesale business units in India to bolster its position in its burgeoning digital commerce market. Amazon has diversified its investments in the Indian market as its stake in various sectors of the Indian economy is staunchly expanding. Amazon has infused over ₹225 crores into its payment's unit in India, Amazon Pay, according to regulatory documents. The fresh infusion is expected to help the company compete more aggressively against rivals like PhonePe, Google Pay and Paytm.

The shares were allotted to Amazon Corporate Holdings Private Limited and Amazon.com.Incs Limited, the documents filed with the Corporate Affairs ministry showed. Amazon has been pumping in millions of dollars across various operations like marketplace, wholesale and payments business as it looks to strengthen its position in the Indian market.

Amazon Web Services (A.W.S.) will be investing $2.77 billion (Rs 20,761 crore) in Telangana to set up multiple data centres, Telangana Minister for I.T. and Industries KT Rama Rao said in 2020. Several notable Indian startups such as Swiggy, Zomato, redBus, Ola, O.Y.O., Razorpay, Unacademy, ixigo, etc., are building their products with A.W.S.

With the infrastructure expansion, Amazon. in will now offer a storage capacity of more than 1.5 million cubic feet across three F.C.s to its more than 80,000 sellers in Gujarat. Spread over more than two lakh square feet area, the new F.C. will help sellers offer a wider selection within the region and neighbouring states. E-commerce major Amazon India in 2020 has set up an all-women delivery station in Kadi, Gujarat - its second such facility in the country. E-commerce major Amazon India in 2020 offered close to 20,000 'seasonal' or temporary employment opportunities in its customer service (C.S.) organisation to help customers in India and globally with a seamless online shopping experience. The new temporary positions - being added to meet the anticipated demand in customer traffic in the next six months -- were open in Hyderabad, Pune, Coimbatore, Noida, Kolkata, Jaipur, Chandigarh, Mangaluru, Indore, Bhopal and Lucknow.

U.S. wireless carrier Verizon Communications Inc and Amazon.com Inc may invest more than $4 billion to stake in India's Vodafone Idea Ltd. Amazon launched its first Indian online pharmacy service in 2020 as it attempts to grab more of the country's burgeoning e-commerce market. Amazon had come up with a $25 million relief fund used to support associates part of its delivery programmes in India in 2020, who were struggling due to the lockdown caused due to the coronavirus pandemic.

Amazon had announced an investment of $1 billion for digitising small and medium businesses and the creation of one million jobs by 2025. Amazon India's fleet of delivery vehicles in the country will include 10,000 EVs by 2025. Amazon India partners with Eastern Railway to set up a kiosk in Sealdah. This follows after the successful pilot of pickup kiosks in four railway stations across Mumbai in 2019. With a daily customer footfall of lakhs of people, this initiative would provide a secure and convenient delivery option for its customers in the region.

Amazon India said this partnership with Eastern Railway would enable the company to boost its delivery network in Kolkata and ensure customers' convenience-led purchasing experience. Amazon India had transported consignments via rail across the country and was leveraging the 'COVID-19 Parcel Special Trains' introduced by the Indian Railways to ramp up its operations to 55 lanes during the lockdown period.

Tech giant Google pays Rs 33,737 Crore for a 7.73% stake in Jio Platforms. Google and Jio Platforms will also collaborate to develop "an entry-level affordable smartphone with optimisations to the Android operating system and the Play Store", the two companies had said in July 2020. With Google, the company will develop an operating system based on Android to power this affordable 5G smartphone that the company plans to launch.

Google C.E.O. Sundar Pichai announced a $10 billion investment in India in 2020 at the Google for India virtual live-stream event. The event focused on contributing to accelerating India's digital economy with this investment over the next five to seven years.

The board of Pegatron, Apple's second-largest contract manufacturer, has approved an initial investment of $150 million (Rs 1100 crore) in 2020 for building manufacturing facilities in India.

The three Taiwanese contract manufacturers — Foxconn, Wistron, and Pegatron - all planned to participate in India's US$6.65 billion production-linked incentive (P.L.I.) scheme in 2020. The scheme is expected to help add 0.5 per cent to India's economic growth in five years by encouraging local electronics production and attracting large investments from major global manufacturers.

Apple debuted its online store in India on September 23, 2020. Apple offered its full range of products along with direct customer support through online team members. iPhone maker is examining the possibility of shifting nearly a fifth of its production capacity from China to India. It will scale up its local manufacturing revenues, through its contract manufacturers, to around $40 billion over the next five years. Apple is planning to commence iPhone 12 manufacturing in India and, in the process and shift 7-10% of the manufacturing capacity of the device in India. 

Facebook buys a 9.99% stake in Reliance Jio for Rs 43,574 crore in the year 2020. Facebook News launched in the year 2020 in India and paid local publishers for content.

Uber in 2020 launched an on-demand 24x7 Auto Rentals service in India. The service allows riders to book an auto and its driver for several hours with the liberty to make multiple stops along a journey, it said in a statement. The service is now live in Bengaluru and is available in Delhi, N.C.R., Mumbai, Hyderabad, Chennai and Pune.

Walmart and Flipkart Group continued its commitment to invest in India's agriculture & food supply chain and strong confidence in Ninjacart. Flipkart said its wholesale unit would acquire parent Walmart's loss-ridden cash-and-carry business in India, Best Price, marking a consolidation of the American major's entire retail portfolio in the country in the year 2020.

Walmart has infused $1.2 billion in Flipkart's commerce business valuing it at $24.9 billion in 2020, as the Indian online retail battle got redrawn with Reliance Jio's plans to leverage its telecom reach to propel online commerce. Walmart planned to hire software professionals for its tech arm, Walmart Labs India. It planned to hire over 2800 new employees in the year 2020.

Flipkart had inked an agreement with the Assam government in 2020 to promote the state's local artefacts and handloom products on its e-commerce marketplace as the government continues to push for Make in India and supporting domestic manufacturing. Flipkart, which runs Samarth to promote handicraft and Indian handloom products, will help Assam's local artisans to showcase their hallmark products to millions of customers across the country.

Under its Samarth program, Flipkart said that it supports the livelihood of over 6,00,000 artisans, weavers and micro-enterprises across India. Other countries and companies have also taken a bullish positioning on the Indian market.

Saudi Arabia's Public Investment Fund invests Rs 9,555 crore in Mukesh Ambani's Reliance Retail. Saudi Arabia's Salic, a 29% minority stake in L.T. Foods subsidiary Daawat Foods, will step up investments in the Indian agricultural ecosystem.

The Indian food processing sector ranked number five globally, is growing at a CAGR of 12% and is expected to reach the U.S. $730 billion by FY24. It accounts for 32% of India's food market and has an 11.6% share of employment in the domestic food industry. Abu Dhabi Sheikh invests $1 billion in top grocer LuLu Group.

World Bank's IFC plans to invest $45 million equity in upGrad Education in the year 2021. The World Bank plans to introduce a $100-million credit guarantee scheme to boost India's rooftop solar programme. An investment of ₹4.7 trillion has been made in India's renewable energy space in the last six years, with an expected ₹1 trillion investment opportunity annually till 2030.

Chinese tech giant Xiaomi is planning to boost its presence in India by building three new facilities there. When it meets growing local demand, the firm may use India's production capacities for exports. Giving a fillip to Make in India, Xiaomi has added two new smartphone production facilities and one smart T.V. plant to its cluster in the country. Xiaomi has two other mobile manufacturing plants in Tamil Nadu and a T.V. manufacturing unit in Andhra Pradesh's Tirupati, run by Dixon Technologies.

Chinese gaming and social media giant Tencent invests $62.8 million in Flipkart amid anti-China sentiment in 2020. Chinese smartphone brand Vivo in March 2021 said it is all set to open nearly 100 exclusive stores across India this year. More than 1,600 Indian companies have received foreign direct investments worth USD 1 billion from China during April 2016 to March 2020 period, according to government data.

The People's Bank of China invested in ICICI Bank in 2020 amid the 'Boycott China' movement. The Chinese bank has emerged as one of ICICI Bank's Rs 15,000 crore capital raising exercise investors.

Chinese smartphone maker Xiaomi, in March 2021, said it would invest ₹100 crores in India to double its retail touchpoints in the country to 30,000 in the next two years. The investment will help retail partners set up and run these new stores. The company said it wants to "foster retail entrepreneurship" in rural markets, and the investment will create over 10,000 new jobs. It will also open a new Mi Retail Academy, where it plans to train sales and customer management staff in skills like in-store designing, marketing, customer service and retail excellence.

Unfazed by the anti-China sentiment, M.G. Motor has said that it will approach the department for the promotion of industry and internal trade (DPIIT) to make fresh investments into India as the Chinese carmaker plans to get in an additional Rs 1,000 crore to launch new models and expand operations in the year 2020.

Germany's Volkswagen group has started to pump in fresh investments to the tune of nearly Rs 8,000 crore in March 2021 for an India fightback, and group company Skoda will lead the charge and says it will launch four new cars in the market, taking on models from Maruti, Hyundai and Tata Motors. German shoe brand Von Wellx has officially shifted its production in two units on November 3, 2020, which shifted from China to Agra (Uttar Pradesh). The Union Cabinet chaired by Prime Minister Narendra Modi in February 2020 apprised of a Memorandum of Understanding (MoU) signed between the Ministry of Railways and the D.B. Engineering and Consulting GMBH of Germany for technological cooperation.

Dutch health tech and consumer electronics company Philips said it would invest Rs 250-300 crore to boost India's manufacturing and R&D facilities. The company also intends to hire 1,000 people over the next two to three years. This also ties in with the 'Make in India' initiative.

Germany's largest lender Deutsche Bank has infused Rs 2,700 crore into its India branch operations, taking its total investment into Indian branches to Rs 18,200 crore.

The European Investment Bank (EIB) in 2020 said it would invest 650 million euros into the construction of Kanpur's first metro line, enabling about three million people in the city to benefit from green, fast and affordable public transport.

Smartphone major Samsung invested Rs 4,825 crore in 2020 to relocate its mobile and I.T. display production unit from China to N.C.R. in Uttar Pradesh.

Japanese government funding agency JICA has signed agreements totalling Rs 15,295 crore with the Indian government for three mega rail infrastructure projects in 2020.

Japanese company N.T.T. aims to invest $2 billion in India for building data centres over the next four years. A part of this commitment will help build solar and wind power generating facilities.

Japan agreed to offer financial assistance to two of its companies in 2020 to diversify their manufacturing base to India as part of its recent initiative to provide subsidies to companies relocating from China. They are Toyota-Tsusho and Sumida.

The developed economies and the big tech giants have displayed an optimistic standing on the wave of Indian investment inflow. India, in recent times, has witnessed a boom in FDI inflows. This can be substantiated by looking at the investments in some states like Uttar Pradesh, Gujarat, Karnataka etc. have emerged as the most preferred hub. India continued to attract strong foreign direct investment inflows in the first two months of the current fiscal.

Gross FDI inflows more than doubled to $18.3 billion in April-May this year compared to $8.5 billion in the same period a year ago, according to R.B.I. data. But nearly a third of the inflows are in the form of acquisition of shares rather than investing in new projects.

The World Investment Report 2021 by the U.N. Conference on Trade and Development (UNCTAD) said global FDI flows had been severely hit by the pandemic, and they plunged by 35% in 2020 to USD 1 trillion from USD 1.5 trillion the previous year.

India has attracted the highest ever total FDI inflow of US$81.72 billion during the financial year 2020-21, and it is 10% higher than compared to the last financial year 2019-20 (US$74.39 billion). FDI equity inflow grew by 19% in the F.Y. 2020-21 (US$59.64 billion) compared to the previous year F.Y. 2019-20 (US$49.98 billion).

In terms of top investor countries, 'Singapore' is at the apex with 29%, followed by the U.S.A. (23%) and Mauritius (9%) for the F.Y. 2020-21. Rajya Sabha, in March 2021, approved a bill to raise the foreign investment limit in the insurance sector to 74%, with Finance Minister Nirmala Sitharaman saying while control will go to foreign companies, the majority of directors and key management persons will be residents Indians whom the law of the land will cover.

Karnataka attracted nearly 68% more FDI in the third (July-September 2020) quarter compared to the second quarter, and the last quarter collections further went up. At Rs 19,955 crore, the state attracted 16% more FDI between October and December compared to the previous quarter.

Erstwhile Karnataka Chief Minister BS Yeddyurappa in 2020 had sought investment from Japanese investors in the 519-acre exclusive industrial township set up only for Japanese investors at Vasanthanarasapura in Tumakuru district, about 88-km from Bengaluru. Despite Covid, Tamil Nadu records Rs. 25,000 crore in I.T. exports in 2020.

The UK India Business Council signed an (MoU) with Industrial Extension Bureau (iNDEXTb), Industries and Mines Department, Government of Gujarat in 2020, the premier agency focused on accelerating industrial development in the state. This collaborative partnership between the UKIBC and the Government of Gujarat will help to boost business and industrial development in the state. It will also aim to enhance the business environment proactively and strengthen collaboration with British businesses in Gujarat.

44 Indian companies, including public sector units, have got approvals related to foreign direct investment (FDI) till now for joint production of defence items with foreign companies in March 2021. Indian government agency Gail (India), on April 5, 2021, said that it was going to invest in startups to operate in focus areas through its initiative 'Pankh'.

The P.S.U. has even opened a fresh round for solicitation of investment proposals from the startups which operate in natural gas, petrochemicals, energy, project management, bio-manure marketing, nanomaterials, IoT, data mining, environment, health and social.

Investments in the Indian startup ecosystem surged 322% in July 2020 year-on-year. The number of companies that garnered the investment, though, fell to 82 last month, against 120 in the same period in 2019.

Government data claimed that FDI was up by 15% to USD 30 billion during April-September 2020. Sectors that attracted maximum foreign inflows during April-September 2020-21 included computer software and hardware (USD 17.55 billion), services (USD 2.25 billion), trading (USD 949 billion), chemicals (USD 437 million) and automobile (USD 417 million).

According to the World Bank, a strong rebound in private consumption and investment growth is likely to push India's FY22 growth to 10.1%, much higher than the 5.4 per cent it had projected in January. 6,000 compliance norms have been identified so far at the state and central level, and the work is going on to reduce these barriers to promote further ease of doing business for the industry.

The government has planned a USD 60-billion investment to create gas infrastructure in the country until 2024, and gas' share in the energy mix is expected to rise to 15% by 2030.

Union Home Minister Amit Shah announced in January 2021 that states would earn Rs. 6500 crores every year due to mining, which will lead to the progress of mineral-rich eastern states from the Rs. 46,000 crores mineral development fund. Confident of meeting coal mining targets, Amit Shah envisaged an investment of Rs. 4 lakh crores in the next 10 years in the sector.

To create a robust infrastructure for the country's rail freight, the Railways is planning four more dedicated freight corridors of a combined length of 4,000 km at the cost of Rs 1.8 lakh crore. A detailed feasibility study is being undertaken, and the report is expected to be prepared by December 2021.

These corridors are the 1,115-km East Coast Corridor from Kharagpur to Vijayawada; the East-West corridor, which comprises 1,673 km connecting Bhusaval-Nagpur-Kharagpur-Dankuni; the 195-km Rajkharswan-Kalipahari-Andal route; the fourth is the 975-km North-South sub-corridor in the Vijayawada-Nagpur-Itarsi route, according to sources. Eastern and Western Dedicated Freight Corridor are currently rapidly built by the Dedicated Freight Corridor Corporation of India, and these are to be commissioned by 2022.

As per a Deloitte report published in September 2021, India remains an attractive market for international investors in terms of short-term and long-term prospects.

As per the data published in a Department of Economic Affairs report, in the first quarter of FY22, India's real gross value added (G.V.A.) also recorded an 18.8% YoY increase in the first quarter of FY22, posting a recovery of >92% of its corresponding pre-pandemic level (in the first quarter of FY20). India's output recorded a 20.1% YoY growth, recovering >90% of the pre-pandemic output in the first quarter of FY20. Also, in FY21, India recorded a current account surplus at 0.9% of the G.D.P. The above threads of investments in India have wisely justified the rise of Bharat in a fair manner. The international arena has shown its keen interest to be a valuable partner to India. The growth in the economic recovery is backed by the government's continued efforts to accelerate vaccination for citizens. This also provided an optimistic outlook for reviving industrial activities.

Despite the pandora box opened by the COVID-19 pandemic, the Indian economy maintained its credibility to perform. India's shrinking economy in 2020 did not stop foreign investors from pouring money into the nation's stocks betting on a recovery.

No doubt, the anti-China sentiments prevailing among the international community turned out to be a boon for India; however, it would be unfair to undermine the reforms and efforts undertaken by the present government to bring back the derailed economy.

India should cease being passive and portray itself as more than a mere alternate to China. It is a challenge that India has taken up to sustain the economic level in this cutthroat race.

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