In a pandemic-ravaged year, India received the highest ever foreign direct investment during the financial year 2020-21 at $ 81.72 billion, as announced by the Ministry of Commerce and Industry. This happens to be 10 % higher than $ 74.39 billion in the previous fiscal year. Singapore was the biggest investor in India last fiscal year accounting for 29 % of the total FDI, followed by the United States at 23 % and Mauritius at 9 %. The industry which saw the maximum inflow was the computer software and hardware segment with 44% of the total FDI equity inflow. 

Currently, 30 unicorn companies in India are Indian startup companies having a huge turnover. According to official data, 18 out of the 30 unicorn companies of India have major foreign direct investments. Foreign investments in Indian Startups have been profitable for both parties and it is quite essential for fostering the Indian startup environment.

Along with major companies like Byju’s, Paytm, Swiggy, and Bigbasket, upcoming startups like Dream11 received 60 million in 2019 followed by Nykaa which received 23.4 million in (2020) from Chinese investors like Tencent and Steadview Capital.

Multiple factors like accelerated digitalization, augmented use of artificial intelligence (AI) to overcome barriers set by the pandemic, and increased policy focus on manufacturing in India have contributed to this impressive rise in foreign investment. The newly introduced production linked incentive (PLI) schemes, aimed to boost export-oriented investments, should accelerate this trend.

Reasons supporting Foreign Direct Investment in India

1. Ease of Doing Business: The Ease of Doing Business in India is projected to trend around 116.00 in 2021, the amendment in-laws and policies being the major reason. For instance, FDI Policy on the Insurance sector was reviewed to increase the sectoral cap of foreign investment from 26% to 49% with foreign investment up to 26% to be under automatic route. Further ahead, the Government has decided to introduce full fungibility of foreign investment in the Banking-Private sector. 

2. Start-up and Unicorn Hub: Large Chinese players have been steadily investing and filling the gap in the tech-startup space in India, which holds strategic market importance. Alibaba and Tencent have been aggressively snapping up stakes in Indian startups in the last five years and many of the firms they’ve helped fund have crossed the US $1 billion thresholds to become unicorns like Snapdeal, Udaan, and Paytm.

3. Medical outsourcing:  Medical outsourcing has become the next big thing, next in line after BPO hit the outsourcing world. Medical outsourcing has been steadily growing in recent years and now large organizations in the U.S and U.K have been offshore outsourcing their employee healthcare services to countries such as India. Apollo Hospitals, India is one of the companies that has successfully entered the realm of medical outsourcing in India.

4. National Education Policy 2020: The Indian higher education sector is abuzz after the Union Cabinet approved the NEP, 2020. Paving the way for foreign universities to set up campuses in the country is one of the major announcements made in the policy. Select universities from the top 100 in the world would be allowed to set up campuses in India and given that countries like the US, UK, Singapore, and Australia have historically attracted Indian students, it is expected that the viability of MOUs with these countries will be considered in the future.

5. Vast and Varied Market: India’s market which not only carries a high demand but also a timeless one is one of the major reasons for attracting FDI. the market doesn’t substitute rather just expands to accommodate the rising demands. Eg: the Indian television market is still going strong despite technological evolutions like the internet. The rural-urban, as well as the rich-poor segregation, is one of the reasons for the timeless sustenance of all products.

6. Robust infrastructural and manufacturing base with improved connectivity:India has a diversified and competent base for undertaking manufacturing of all kinds of goods to meet requirements of all kinds of sectors, including heavy electrical equipment, power generation and transmission, etc. India is expected to become the world’s third-largest construction market by 2022. Initiatives like Housing for All, Smart Cities Mission, Sagarmala Project, AMRUT etc. have been aimed at facilitating a vision of ‘New India’, which is smart, technologically advanced, and developed.

India has also announced the ambitious National Infrastructure Pipeline (NIP), covering both economic and social infrastructure projects. It is touted to be the first-of-its-kind initiative to provide world-class infrastructure across the country with energy, roads, railways and urban development projects being major beneficiaries.

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Tags: Foreign Direct Investment, Funding, Investment, Top Content, Venture Capital