India Beats Covid-19 Challenges, Ukraine Conflict To Post Highest FDI Inflow Of $83.57 Billion In FY22

Defying formidable external challenges of the Ukraine crisis and COVID-19 pandemic and riding on a bouquet of policy initiatives to make India an attractive destination for external capital, India’s annual foreign direct investment inflows surged to a record high of $83.57 billion in FY2021-22, official figure released by the Ministry of Commerce and Industry on Friday (20 May) shows.

A robust increase in equity inflows in manufacturing, computer software and hardware pushed India’s FDI to the highest ever annual inflow of $83.57 billion, overtaking last fiscal’s FDI of $81.97 billion by $1.60 billion.

In fact, FDI inflows have risen by 23 per cent post-Covid between March 2020 to March 2022 which saw inflow of $171.84 billion as compared to the FDI inflow of $141.10 billion reported in the pre-Covid period of February 2018 to February 2020.

According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at $572.81 billion between April 2000-December 2021, indicating that the government's efforts to improve ease of doing business and relaxing FDI norms have yielded results.

Global sentiment has thus veered optimistically around India as an attractive destination for investment buoyed by quick economic recovery. According to the Asian Development Bank, the Indian economy rebounded strongly in fiscal 2021 following a contraction in fiscal 2020 as easing supply chain disruptions softened inflation, despite rising global oil prices.

The government took to wooing FDI in India with amending rules of the Foreign Exchange Management Act (FEMA), allowing up to 20 per cent FDI in the insurance company LIC through the automatic route and implementation of PM Gati Shakti, single window clearance and GIS-mapped land bank which are expected to push FDI inflows in 2022.

In September 2021 the government allowed 100 per cent FDI in the telecom sector via the automatic route, up from the previous 49 per cent, following up with reforms across coal mining, contract manufacturing, digital media, single brand retail trading, civil aviation and defence.

India has also stepped up efforts at global fora like the recent Confederation of Indian Industry (CII) and the US-India Business Council roundtable for business leaders and investors attended by Finance Minister Nirmala Sitharaman. A strong signal has been sent out to investors on the India growth story underlined by its emergence from the pandemic as one of the world’s fastest growing major economies and increased capital expenditure especially in infrastructure to boost FDI.

In sync with an increasingly propitious outlook on India, Singapore - as per the latest Ministry data -- has emerged at the top of the pecking order by way of FDI inflows in FY2021-22 with 27 per cent share, followed by USA at 18 per cent and Mauritius at 16 per cent for FY 2021-22.

With India rapidly emerging as a preferred investment destination, FDI inflows have increased 20-fold since FY2003-04, when the annual receivable was just $4.3 billion. In 2014-2015, FDI inflow in India stood at $45.15 billion. Between April-December 2021, India recorded the highest FDI equity inflow from Singapore of $11.69 billion, followed by the US inflow of $7.52 billion, Mauritius inflow of $6.58 billion, the Cayman Islands contributing $2.74 billion, the Netherlands $2.66 billion and the UK $1.44 billion.

While FDI equity inflows in manufacturing sectors rose by 76 per cent in FY 2021-22 at $21.34 billion compared to the previous fiscal’s inflow of $12.09 billion. Computer software and hardware have emerged as the top recipient sector of FDI equity inflow with a share of around 25 per cent followed by services sector and automobile industry with 12 per cent share each.

Data between April-December 2021 also shows that the computer software and hardware industry attracted the highest FDI equity inflow of $10.25 billion, followed by the automobile sector at $5.96 billion, services sector at $5.35 billion, trading sector at $2.99 billion, construction activities at $1.59 billion, and drugs and pharmaceuticals at $1.21 billion.

Karnataka is the top recipient state with 38 per cent share of the total FDI equity inflow reported during FY 2021-22 followed by Maharashtra at 26 per cent and Delhi with 14 per cent share in inflow. Karnataka also walked away as the top FDI equity inflow recipient in computer software and hardware sector with a share of 53 per cent followed by Delhi and Maharashtra with a share of 17 per cent FDI inflows.

In Karnataka’s share of FDI inflow, the major chunk has been reported in computer software and hardware with a share of 35 per cent, automobile industry with 20 per cent and education getting 12 per cent inflows during FY 2021-22.

Some of the recent investments and developments in the FDI space, according to the India Brand Equity Foundation are Italian financial services major Generali completing the acquisition of 25 per cent stake in Future Generali India Insurance from Future Enterprises for $161.92 million, GenWorks Health securing a second round of funding worth $17.44 million from a consortium of investors including Somerset Indus Capital Partners, Morgan Stanley through its funding arm Grand Vista, Evolvence and Wipro GE.

Besides, Toplyne, a software-as-a-service (SaaS) startup, raised $15 million in a funding round led by Tiger Global and Sequoia Capital India, Kiranakart Technologies which runs 10-minute grocery delivery platform Zepto, raised $200 million in a series D funding round led by Y Combinator’s Continuity Fund which valued it at $900 million.

In May KoinBasket, a thematic crypto investment start-up, raised $2 million in a pre-seed funding round, Invictus Insurance Broking Services which runs insur-tech platform Turtlemint Insurance Services, raised $120 million in a series-E funding round led by Amansa Capital, Jungle Ventures and Nexus Venture Partners, while Jaipur-based online furniture and home decor platform Woodenstreet.com raised around $30 million in a series-B funding round led by WestBridge Capital and B2B cross-border tech platform Geniemode received $28 million in series-B funding led by Tiger Global and Info Edge Ventures.

In January 2022, Google announced investment of $1 billion in Bharti Airtel which includes an equity investment of $700 million for a 1.28 per cent stake in the company and $300 million for potential future investment in areas like smartphone access, networks, and the cloud.

Canada’s pension fund investment board invested $160.49 million as an anchor investor in the IPO of multiple Indian companies - One 97 communication (Paytm), Zomato, FSN E-Commerce Ventures (Nykaa), and PB Fintech. The FDI in India’s renewable energy sector stood at $1.03 billion for the first half of the financial year 2021-22.

The going looks good with India’s growth trajectory, as per a PHD chamber projection, is expected to remain steady in 2022-23 and India is expected to attract a $100 billion FDI inflow in 2022-23. According to a CII and EY report, India is expected to attract FDI worth $120-160 billion per year by 2025, while a Deloitte report published in September 2021 vouched for India remaining an attractive market for international investors both in terms of short-term and long-term prospects.

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