Foreign Direct Investment (FDI) in India: Inflows in 2023 and last 10 years

• Department for Promotion of Industry and Internal Trade (DPIIT)- DPIIT formulates and implements policies to promote and regulate foreign investment in India across sectors.
• Reserve Bank of India (RBI)- RBI manages the monetary aspects of foreign investments in India.
• Securities and Exchange Board of India (SEBI)- SEBI regulates FDI in the capital market.

Key policy changes and reforms

The Startup India program offers incentives and tax benefits to startups, helping in their momentous growth. This makes the tech and innovation sector an appealing investment for foreign investors in India. Moreover, simplified processes, like single-window clearance and the Goods and Services Tax (GST) implementation, have eased the bureaucratic burden on businesses and foreign investors in India, thereby enhancing the ease of business in the country.

FDI routes in India

There are two FDI routes in India designed to safeguard India's security and national interests. The government employs these routes as a means to promote foreign investment in India in particular sectors, and these FDI routes in India also empower foreign investors in India to choose the pathway that aligns with their business objectives and ensures compliance with India's regulations.

Automatic route

The automatic route allows foreign investors in India to invest in sectors without requiring prior approval from Indian authorities. Under this route, investors are only required to notify the Reserve Bank of India (RBI) within a specified time frame.

This route is designed to promote ease of doing business and attract foreign capital, making it particularly attractive for sectors open to higher FDI limits or do not have specific security concerns.

Government route

The government route necessitates prior approval from the Indian government or relevant ministries for foreign investors in India. This route is typically reserved for sectors that involve national security, strategic interests, or have specific regulatory concerns.

This route helps the government maintain control over sensitive areas of the economy while still allowing foreign investments in India on a case-by-case basis.

FDI in India inflows over the last ten years

The table below provides the FDI in India inflows over the past decade, with data sourced from UNCTAD.

Factors affecting FDI inflows

Factors influencing FDI inflows are essential considerations for any nation seeking to attract and optimise foreign capital. The key factors affecting inflows of foreign investments in India include-

1. Economic stability
2. Regulatory environment
3. Sectoral policies
4. Political stability
5. Infrastructure

Sector-specific conditions, and limits

The approach to FDI in India is diverse. Let’s look at the sector-specific conditions and limits for FDI in India:

Allowed sectors and FDI limits

By allowing foreign investments in India in specific areas, the government aims to attract capital, expertise, and innovation while bolstering economic competitiveness and reducing import dependency. The table below shows the FDI limit for various sectors along with FDI routes in India, with data sourced from Make In India.

Sectors where FDI is not allowed

Certain sectors are not permitted to receive FDI in India due to a range of reasons, including national security concerns, safeguarding domestic interests, and protecting small and medium-sized enterprises (SMEs). These sectors are listed below with data once again sourced from Make In India.

1. Lottery business including Government/private lottery, online lotteries, etc.
2. Chit funds
3. Trading in Transferable Development Rights (TDR)
4. Manufacturing cigars, cheroots, cigarillos and cigarettes, and tobacco substitutes
5. Gambling and betting, including casinos
6. Nidhi company
7. Real estate business or construction of farmhouses
8. Sectors not open to private sector investment- atomic energy, railway operations (other than permitted activities mentioned under the Consolidated FDI policy)

Notable foreign investments in India in crucial companies

In the past decade, there has been a constant influx of FDI in India. Foreign investors in India have practically invested in every sector, including pharmaceuticals, automobiles, textiles, and railways. FDI in India has led to advancements in infrastructure, job creation, increased exports, and substantial support for the formal sector.

Here are a few noteworthy instances of recent foreign investments in India-

1. In July 2023, Walt Disney explored various strategies to help its Star India business grow and reduce expenses, which may involve a joint venture or sale.
2. In July 2023, Havas's Indian arm, a French advertising and public relations company, declared its acquisition of PivotRoots.
3. In June 2023, Private equity investors, including Blackstone Inc., BPEA EQT, CVC Capital Partners, and General Atlantic Service Company, were competing to acquire Mumbai-based Indira IVF Hospital Pvt. Ltd.
4. In February 2023, Singapore Airlines purchased a 25.1 percent stake in the Air India group for $267 million.
5. In January 2023, the rural economy-focused technology startup VilCart secured $18 million in funding from Asia Impact SA, Nabventures Fund, and Texterity Pvt Ltd to expand its operations.
6. In December 2022, the data science and AI solutions company Tredence raised $175 million in a series B funding round led by Advent International.
7. On October 31, 2022, the Software-as-a-Service (SaaS) company Icertis raised $150 million in funding from Silicon Valley Bank.
8. In October 2022, Byju's obtained $250 million from its lead investor, Qatar Investment Authority (QIA).
9. In August 2022, the ed-tech unicorn upGrad raised $210 million in a funding round led by ETS Global, Kaizen Management Advisors, and Bodhi Tree, valuing the company at $2.25 billion.