Despite the disruption caused by COVID-19, FDI into India increased by 25% in 2020-21. This increase was largely due to the more than 3-fold increase in FDI in the Computer Hardware & Software sector. FDI from USA also increased substantially. Here are the numbers in detail.
As per the World Investment Report -2021 (WIR) released by UNCTAD (United Nations Conference on Trade and Development), India was the ranked 5th largest recipient of Foreign Direct Investment (FDI) in 2020. The data from the report indicates that there is an increase in India’s FDI inflow by 27% compared to 2019. These numbers show that India continues to be a preferred destination for FDI, despite the disruption caused by the COVID-19 pandemic.
The information in WIR-2021 is further corroborated by the ‘Quarterly Fact Sheet on FDI’ published by the Department for Promotion of Industry & Internal Trade (DPIIT) of the Government of India. The provisional value of total FDI received in 2020-21 is around 25% more than the amount received in 2019-20. Recently, DPIIT released the fact sheet for the first quarter of 2021-22, which also indicates a higher FDI inflow compared to the first quarter of 2020-21.
Earlier, we had analysed the FDI trends in India over a ten-year period up to 2019. In view of the COVID-19 pandemic, we look at trends in FDI for the last two years and analyse if there is any impact of the pandemic.
Higher FDI inflows during 2nd & 3rd Quarter contribute towards the overall increase in 2020-21
As indicated, the FDI inflow into India during 2020-21 increased by around 25% compared to 2019-20. In 2020-21, the total value of FDI received was Rs. 4.42 lakh crores while in 2019-20 it was Rs. 3.53 lakh crores. The growth rate recorded in 2020-21 is higher than that of 2019-20 which was 14%. However, the increase in FDI during 2020-21 compared to 2019-20 was not uniform across the year.
The FDI received during the first quarter of 2020-21 was Rs. 49.81 thousand crores, compared to Rs. 113.47 thousand crores during the first quarter of 2019-20. The comparative lower monthly FDI continued in July 2020 as well. This period coincides with the early phase of the COVID-19 pandemic in India, and more specifically the nationwide lockdown. However, in August ’20, there was a huge spike in the FDI inflow with Rs. 1.31 lakh crores. This could be a result of the economy opening and the pending FDI flowing in. The higher month-on-month trend continued for the remainder of 2020. But during the last quarter of 2020-21, the FDI inflow slowed down and was lower than the FDI received during the last quarter of 2019-20.
The first quarter trends for 2021-22 indicate higher FDI inflow compared to even the first quarter of 2019-20.
FDI from the USA more than tripled in 2020-21 compared to 2019-20
The increase in FDI during 2020-21 can be largely attributed to the increase in FDI from the USA.
A review of the FDI in recent years shows an increasing trend in FDI investment from the USA. In 2019-20, the USA ranked fourth as the source country of FDI inflow into India with a volume of Rs. 29.85 thousand crores. This accounted for around 8.5% of the total FDI received by India in that year.
However, in 2020-21, there was an exponential increase in the FDI from the USA which reached Rs. 1.02 lakh crores, which is around 23% of the total FDI received in 2020-21. Further, the USA stands next only to Singapore in 2020-21 as the top source country for FDI inflow. The FDI inflow from Singapore which is the highest in recent years increased by 25% during 2020-21 compared to 2019-20. The increase in FDI from the USA & Singapore compensated for the fall in FDI from other major FDI sources such as – Mauritius, Netherlands, Japan, Cayman Islands, etc. Meanwhile, there was also a significant increase in FDI from UAE, which increased from Rs. 2.3 thousand crores in 2019-20 to Rs. 31.2 thousand crores in 2020-21.
During the first Quarter of the current financial year i.e., 2021-22, Mauritius & Singapore are the source for the highest FDI, followed by the USA.
Computer (Hardware & Software) & Construction sectors are the key contributors to increased FDI in 2020-21
As is the case with the investing countries, the increase in FDI during 2020-21 was not uniform even in the case of the sectors that attracted investment. As per the information available with DPIIT, most of the sectors received lesser FDI in 2020-21 compared to 2019-20.
The Service Sector, which received the highest FDI until 2019-20, witnessed a fall in the investments in 2020-21. The FDI in the sector during 2020-21 was Rs. 37.54 thousand crores, compared to Rs. 55.42 thousand crores in 2019-20. The major fall in the investment was in the Telecommunication Sector where-in the FDI fell from Rs. 30.94 thousand crores in 2019-20 to only Rs. 2.88 thousand crores in 2020-21. The automobile industry also witnessed a fall in the FDI.
Understandably, the Tourism industry received a major hit during 2020-21. During 2019-20, the FDI in this sector was Rs. 21 thousand crores, which fell to Rs. 2.76 thousand crores in 2020-21. This is lower than the Rs. 7 thousand crores of FDI received in 2018-19. The fall in the FDI in these major sectors was offset by the increased FDI in other sectors.
Computer (Software & Hardware Sector) witnessed a nearly 3.5 times increase in the quantum of FDI in 2020-21 compared to 2019-20. During 2019-20, FDI in this sector was Rs. 54.2 thousand crores, which increased exponentially to Rs. 1.94 lakh crores in 2020-21.
Similarly, the FDI in Construction (Infrastructure) sector increased from Rs. 14.5 thousand crores in 2019-20 to Rs.58.2 thousand crores in 2020-21. Another sector that benefited from increased FDI during 2020-21 is Drugs & Pharma, where the FDI increased from Rs. 3.6 thousand crores in 2019-20 to Rs.11 thousand crores in 2020-21.
Early trends for the current financial year i.e., the first quarter of 2021-22, indicate that the Computer sector continues to receive higher FDI, with a recovery in Automobile Industry.
Gujarat, Maharashtra & Karnataka account for more than 75% of the total FDI
The destination of the FDI in India is concentrated among few states. For the year 2020-21, Gujarat received FDI worth Rs. 1.63 lakh crores, which accounts for around 37% of the total FDI received by India. Maharashtra accounted for nearly 27% of the total FDI in 2020-21. Together with Karnataka, these three-state accounts for more than 75% of the total FDI received by India in 2020-21. Delhi & Tamil Nadu are the other prominent states that received more than Rs. 15,000 crores each in 2020-21.
DPIIT has been reporting the FDI received by States since October’2019. Prior to that, the reporting was based on RBI Regional offices. For the 18 months that the information is made available (October’2019 – March’2021) state-wise, 83% of the total FDI went to the four states of – Gujarat, Maharashtra, Karnataka & Delhi.
A study report by RBI from 2011 indicates that the more industrialized & developed states are likely to receive a higher share of FDI, ignoring the other economically weak states. This is clearly reflected in the states receiving the highest FDI.
Albeit a lower value, Jharkhand which is considered to be among the economically poorer states has managed to attract about 3% of the total FDI received by India during these 18 months. This could be because of the presence of the mining industry.
While the regional differences in receiving the FDI can be attributed to the better investment opportunities and congenial investment climate in the states, the numbers do not reveal the total picture. As highlighted above, the data reported by DPIIT is based on the RBI regional offices (along with the State they are situated). Any FDI involves investment made by a foreign agency in the form of Capital/reinvestment into an entity in India. While the entity in India can expand its scope of business, the FDI is into the registered entity. Hence, the FDI inflow is recorded & attributed to the geographical location of the registered entity.
While states like Gujarat, Maharashtra, Karnataka, Tamil Nadu, Telangana, etc. might be among the states which attract more FDI, the numbers could be higher also because they are host states for some of the organizations with operations across the country.
Featured Image: FDI in India
