Inbound FDI rose 14% in FY20 to $49.9 billion; service sector top recipient

The services sector, encompassing financial, banking, insurance, outsourcing, among other industries, was the highest recipient of FDI at $7.8 billion
Foreign direct equity investments (FDI) in 2019-20 grew by 14 per cent, a four-year high, to a record $49.8 billion, according to data released by the Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday.

The figures are expected to comfort policymakers who were worried about tepid growth in equity investments, which had contracted by 1 per cent in 2018-19 and risen only 3 per cent in the year before that. Total FDI, which includes equity capital of unincorporated bodies, reinvest earnings and other capital stood at $73.4 billion, up from $63 billion a year ago, an 18 per cent jump.

The services sector — encompassing financial, banking, insurance, and outsourcing, among others — was the highest recipient of FDI at $7.8 billion. This was closely followed by computer software and hardware manufacturing at $7.6 billion. The telecommunications sector garnered $4.5 billion. Maharashtra continued to be the most favored destination of investors, receiving $7.2 billion worth of investments. This was followed by Karnataka with $4.2 billion, and Delhi with $3.9 billion.

In FY20, Singapore continued to be the largest source of FDI for India for the second consecutive year, pushing in $14.6 billion, followed by Mauritius at $8.2 billion. Singapore has long been the highest source of foreign funds to India, pumping in around $97.6 billion since 2000, constituting a fifth of all inbound FDI over this period.

However, inflows from Singapore have shot up over the past two years as an increasing number of Indian firms are getting incorporated in the island nation’s jurisdiction. India revised its tax treaty with Mauritius and Singapore, which came into effect in FY20.

The Netherlands ($6.5 billion), the United States ($4.2 billion) and Japan ($3.2 billion) made up the top five FDI sources.
Officials are, however, bracing for a tough year ahead for FDI. According to the United Nations Conference on Trade and Development (UNCTAD), updated estimates of Covid-19’s economic impact and revisions of earnings of the largest multinational enterprises now suggest FDI flows could shrink by up to 40 per cent during 2020-2021, way more than previous projections of 5 to 15 per cent.

Chinese funds low

Interestingly, investments from China, which have attracted a lot of controversy recently, only stood at $160 million in FY20. In April, the Centre mandated that all FDI from China will need to have prior government approval.

In the order protecting domestic firms from hostile takeovers by “opportunistic foreign firms” during the pandemic, companies have been asked to seek approval if citizens from neighboring countries have beneficial ownership in a company that wishes to invest. 

However, investors, lawyers and experts continue to remain in the dark as the DPIIT is yet to clarify on beneficial ownership.

Constantly billed as the biggest source of FDI by the Modi government in its first term, inflow of capital from China has reduced constantly. India had received FDI equity inflows worth $494 million from China in 2014-15, the year the Modi government took charge.

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