India received $142.29 billion in foreign direct investments (FDI) between 2019 and 2022 up to which data is available for the entire financial year.
Of this, 87.4% or $124.4 billion of the FDI has flown into just 5 states: Maharashtra, Karnataka, Gujarat, Delhi, and Tamil Nadu.
Among the 5 states, Maharashtra has received $39.2 billion followed by Karnataka $34 billion. Among sectors, the software industry has received the maximum 23% of the total followed by the Services Sector (Finance, Banking, Insurance, Non-Fin/Business, Outsourcing, R&D, Courier, Tech. Testing and Analysis).
“FDI inflow includes equity inflow, equity capital of unincorporated bodies, re-invested earnings, and other capital. The sector and state-wise details are maintained only for the equity component of total FDI inflow,” says a senior Union Commerce Ministry official.
To attract foreign investors, the union government has put in place an investor-friendly policy, wherein most sectors except certain strategically important sectors are open for 100% FDI under the automatic route.
“The policy on FDI is reviewed on an ongoing basis, to ensure that India remains an attractive and investor-friendly destination. Changes are made in the policy after consultations with stakeholders including apex industry chambers, associations, representatives of industries/groups and other organisations,” says the official.
The government has recently undertaken a number of reforms across sectors. “In the last one year alone, reforms in the FDI policy have been undertaken in sectors such as Insurance, Petroleum & Natural Gas, Telecom, and so on,” he says.
The official listed major reforms undertaken by the government to woo FDI into the manufacturing sector. Some of the steps taken by the government are:
Labour Reforms: The government has formulated four labour codes: Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020.
Digitising of Land Records: The government is running a scheme ‘Digital India Land Record Modernisation Programme (DILRMP)’ which aims to digitise/tag land records, including mutations, improve transparency in the land records maintenance system, digitise maps and survey, update all settlement records, and minimise the scope of land disputes.
“It has 3 major components - (a) Computerisation of land record (b) Survey/re-survey (c) Computerisation of Registration. This scheme is very helpful for land acquisition transactions in reference to ease of doing business,” adds the official.
Industrial Corridor Development Programme: To accelerate growth in manufacturing, the government has adopted the strategy of developing industrial corridors in partnership with state governments. The objective of this programme is to develop greenfield industrial regions/areas/nodes with sustainable infrastructure, and make available the plug-and-play infrastructure at the plot level.
Production Linked Incentive Scheme: Keeping in view India’s vision of becoming ‘Atmanirbhar’, Production Linked Incentive (PLI) Schemes for 14 key sectors are under implementation with an outlay of Rs 1.97 lakh crore to enhance India’s Manufacturing capabilities and Exports.
National Single Window System: The setting up of the National Single Window System (NSWS) was announced in the Budget 2020-21 with the objective to provide “end to end” facilitation and support to investors, including pre-investment advisory, provide information related to land banks and facilitate clearances at Centre and state level.
PM Gati Shakti National Master Plan (NMP): The PM Gati Shakti National Master Plan (NMP), a GIS-based platform with portals of various ministries/departments of government, was launched in October 2021. It is a transformative approach to facilitate data-based decisions related to integrated planning of multimodal infrastructure, thereby reducing logistics costs. The Empowered Group of Secretaries (EGoS) and Network Planning Group (NPG) have been created as an institutional arrangement.
“For enhanced capital expenditure by states for infrastructure development, the Ministry of Finance through the “Scheme for Special Assistance to States for Capital Investment for 2022-23” has made an additional provision of Rs 1,00,000 crore for disbursement among the states as long-term loans at a zero-interest rate. Out of this, under Part II of the scheme Rs 5,000 crore is specifically provided for PM Gati Shakti-related expenditure,” says the official.
Ease of Doing Business: The objective is to improve the Ease of Doing Business and Ease of Living by Simplifying, Rationalising, Digitising and Decriminalising Government to Business and Citizen Interfaces across ministries/states/UTs.
Tamil Nadu, as per the data, has wooed $6.3 billion though almost all foreign cars are made outside Chennai city. “The data does not show the real FDI flows. The problem with foreign companies is they have their corporate offices in New Delhi or Mumbai but the entire manufacturing happens in Tamil Nadu. Thus, the FDI data says that more investments have come into Maharashtra or Delhi,” says an additional chief secretary attached to the Tamil Nadu government.
“FDI will come to states which have good infrastructure like land, power, water, and transport connection. That way states like Maharashtra, Gujarat and Tamil Nadu stand out as these states have been the manufacturing states of the country due to availability of ports, airports, railway, road, and power,” says economist Venkatesh Athreya.
He says in Karnataka a majority of the investments are in the software sector and services sector. “This is a growing sector and many software companies have their main offices in and around Bengaluru,” says Athreya.