Introduction:
Foreign Direct Investment (FDI) involves a lasting interest from an investor in one country in an enterprise situated in another. In FY 22-23, India witnessed total FDI inflows of $70.97 Bn, with FDI equity inflows reaching $46.03 Bn. The top five contributors to FDI equity inflows during FY 2022-23 were Mauritius (26%), Singapore (23%), the USA (9%), the Netherlands (7%), and Japan (6%).
Body:
Significance of Foreign Direct Investment (FDI):
- Economic Growth: FDI contributes to economic growth by providing foreign capital for infrastructure, industrial expansion, and technological advancements. Notably, it played a role in the manufacturing of silicon chips in India under initiatives like PLI.
- Job Creation: FDI is pivotal in generating employment, and addressing challenges related to unemployment and poverty reduction.
- Technology Transfer: Multinational corporations introduce advanced technology and expertise, fostering domestic innovation, as seen in collaborations on projects like Brahmos and advancements in Jet Engines and Submarines.
- Balance of Payments: FDI enhances foreign exchange reserves, crucial for economic stability and managing trade deficits.
- Industrial Development: It stimulates growth in sectors like manufacturing, aligning with initiatives such as “Make in India,” exemplified by collaborations like Airbus with TATA in airplane manufacturing.
- Global Integration: FDI integrates India into the global economy, fostering international cooperation.
Reasons for Decline in FDI Inflows:
- Economic Factors: High inflation and weak demand in the US and Europe reduce India’s attractiveness as an investment destination.
- Policy Reforms: Lack of significant policy reforms and state-level improvements contributes to the decline in FDI.
- Global Pessimism: A pessimistic outlook on global growth leads to a decline in cross-border mergers and acquisitions.
- Geopolitical Factors: Geopolitical tensions, particularly with China after border clashes in 2022, contribute to the decline in Chinese FDI.
- Tech and Other Industries: The decline in FDI affects industries beyond technology, reflecting a broader trend.
- Policy Uncertainty: Investors face unpredictability and mid-course policy changes, impacting investment decisions.
- Uneven Playing Field: Disparities in regulations and implementation discourage investments.
- Absence from Trade Agreements: India’s absence from agreements like RCEP and the lack of EU trade deals hinder FDI attraction.
- Infrastructure Bottlenecks: Inadequate infrastructure, especially in logistics and energy sectors, deters potential investors.
Remedial Measures to Enhance FDI:
- Liberalized FDI Regulations: The government has relaxed FDI norms in sectors like defense, PSU oil refineries, telecom, power exchanges, and stock exchanges, facilitating increased foreign investor participation in these areas.
- ‘Make in India’ and ‘Atmanirbhar Bharat’ Initiatives: The campaigns, coupled with efforts to integrate India into global supply chains, have bolstered FDI inflows by emphasizing domestic manufacturing and self-sufficiency.
- Investment-Boosting Schemes: The introduction of schemes like the National Technical Textile Mission, Production Linked Incentive Scheme, and Pradhan Mantri Kisan SAMPADA Yojana aims to attract sector-specific investments and offer incentives to investors.
- Revised E-commerce FDI Rules: Amendments in FDI rules now permit 100% FDI in the marketplace-based model of e-commerce, fostering a more favorable environment for foreign investments.
- Streamlined Real Estate Broking Services Approval: The elimination of government approval requirements for FDI up to 100% in Real Estate Broking Services simplifies the investment process in this sector.
Conclusion:
Enhancing FDI is crucial for India’s economic growth, emphasizing the need to diversify sources of investment and not solely rely on foreign capital. Implementing stable policies, improving the business environment, and addressing infrastructure challenges will be key to attracting and sustaining FDI in the country.
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