Nitty-Gritty Realities of FDI in India- Chapter One

Nitty-Gritty Realities of FDI in India- Chapter One


Foreign Direct Investment in India


INTRODUCTION


Foreign Direct Investment (FDI), a key driver of economic growth, has been a significant non-debt financial resource for India's economic development. Foreign corporations invest in India to benefit from the country's particular investment privileges, such as tax breaks and comparatively lower salaries.

This helps India develop technological know-how and create jobs, as well as other benefits. These investments have been coming into India because of the government's supportive policy framework, vibrant business climate, rising global competitiveness and economic influence.

The government has recently made numerous efforts, including easing FDI regulations in various industries, PSUs, oil refineries, telecom and defense. India's FDI inflows reached record levels during 2021–22. The total FDI inflows stood at US$ 46.03 billion in the current financial year.

Information and technology, telecommunication and automobile were the major receivers of FDI in FY22. With the help of significant transactions in the technology and health sectors, Multinational Companies (MNCs) have pursued strategic collaborations with top domestic business groups, fueling an increase in cross-border M&A of 83% to US$27 billion. India emerges as the FDI powerhouse and secures the third-highest foreign investment in 2022.

The total amount of FDI inflows received during the last nine years (April 2014–March 2023) was US$ 596.07 billion. This FDI has come from more than 101 countries that have invested across 31 UTs and states and 57 sectors in the country.

India's FDI inflows have increased 20 times from 2000-01 to 2021-22. According to the Department for Promotion of Industry and Internal Trade (DPIIT), India's cumulative FDI inflow stood at US$ 919.633 billion between April 2000- March 2023, mainly due to the government's efforts to improve the ease of doing business and relax FDI norms.

The total FDI inflow into India from January to March 2023 stood at US$ 15.49 billion. From April 2000 to March 2023, India's service sector attracted the highest FDI equity inflow of 16%, amounting to US$ 102.85 billion, followed by the computer software and hardware industry at 15%, amounting to US$ 94.91 billion, trading at 6%, US$ 39.53 billion, telecommunications at 6%, US$ 39.04 billion and automobile industry at 5%, US$ 34.74 billion.

India also had major FDI inflows during April 2000- March 2023, coming from Mauritius at US$ 163.87 billion with a total share of 26%, followed by Singapore at 23% (US$ 148.16 billion), the USA at 9% (US$ 60.19 billion), the Netherlands at 7% (US$ 43.75 billion) and Japan at 6% (US$ 38.74 billion). The state that received the highest FDI during this period was Maharashtra (US$ 53.97 billion), followed by Karnataka (US$ 44.46 billion), Gujarat (US$ 31.90 billion), Delhi (US$ 25.19 billion), and Tamil Nadu (US$ 8.50 billion). In 2022 (until August 2022), India received 811 Industrial Investment Proposals (IIP) which were valued at Rs. 352,697 crore (US$ 42.78 billion). Cumulatively, the total amount of Industrial Investment Proposals for 2022 increased to US$ 298 billion (Rs. 23.6 lakh crore) as compared to US$ 169.5 billion (Rs. 13.8 lakh core) in the previous year.


INVESTMENTS/DEVELOPMENTS


India has become an attractive destination for FDI in recent years, influenced by various factors that have boosted FDI. India ranked 37th in the World Competitive Index 2022, jumping 6 positions from the 43rd rank in 2021. India was also named the 48th most innovative country among the top 50 countries, securing the 40th position in the Global Innovation Index 2022. These factors have boosted FDI investments in India. Some of the recent investments are as follows:

  • In July 2023, Walt Disney is considering options for its Star India business, including a joint venture or sale, as it looks to help the India business grow and reduce costs.
  • In July 2023, French advertising and public relations company Havas’s India arm announced the acquisition of PivotRoots.
  • In June 2023, Allcargo Logistics completes the acquisition of 30% stake in Gati-Kintetsu Express (GKEPL) for US$ 49.48 million (Rs. 406.71 crore).
  • In June 2023, BPEA EQT group (formerly Baring Private Equity Asia), in partnership with ChrysCapital, is set to acquire around 90% stake in Housing Development Finance Corporation's wholly-owned education financial subsidiary HDFC Credila Financial Services Ltd (HDFC Credila) for US$ 1.10 billion (Rs. 9,060.5 crore).
  • In June 2023, Private equity (PE) investors Blackstone Inc., BPEA EQT ((formerly Baring Private Equity Asia), CVC Capital Partners, and General Atlantic Service Company are competing to acquire Mumbai-based Indira IVF Hospital Pvt. Ltd.
  • In April 2023, Sheares Healthcare, a subsidiary of Singapore-based Temasek, agreed to purchase a majority position in Manipal Health Enterprises, increasing its holding from 18% to nearly 59% for around US$ 2 billion (Rs. 16,400 crores).
  • In February 2023, Singapore Airlines acquired 25.1% share in the Air India group after investing US$ 267 million.
  • VilCart, the rural economy-focused technology startup bagged US$ 18 million in January 2023 from Asia Impact SA, Nabventures Fund and Texterity Pvt Ltd in order to expand their operations.
  • Data Science and AI Solutions company, Tredence raised US$ 175 million in series B funding from Advent International in December 2022.
  • In December 2022, a portfolio company of Edelweiss Alternative Asset Advisors Ltd.'s Infrastructure Yield Plus Strategy, Epic Concesiones Pvt Ltd., acquired a 100% equity stake in L&T Infrastructure Development Projects Limited (L&T IDPL) for an enterprise value of approximately US$ 734.57 million (Rs. 6,000 crore).
  • Indian beer startup Bira 91, raised US$ 70 million from Japanese beverage conglomerate Kirin Holdings in November 2022.
  • A business-to-business (B2B) e-commerce startup, Udaan bagged an investment of US$ 120 million in October 2022, from existing shareholders and another US$ 35 million from EvolutionX, started by DBS and Temasek via convertible notes and debt in November 2022.
  • A Software-as-a-service (SaaS) company, Icertis bagged a funding of US$ 150 million on 31st October 2022 from Silicon Valley Bank.
  • In October 2022, Byju’s raised US$ 250 million from the existing lead investor Qatar Investment Authority (QIA).
  • upGrad, an ed-tech unicorn recently raised US$ 210 million in a funding round led by ETS Global, Singapore's Kaizen Management Advisors and Bodhi Tree at a valuation of US$ 2.25 billion in August 2022.
  • Novo Holdings, a leading international investor in healthcare and life sciences invested US$ 50 million in MedGenome, a health tech startup in August 2022.
  • In July 2022, OneCard, a mobile-first credit card company, raised US$100 million backed by Temasek, making it the 104th unicorn in India.
  • G.O.A.T Brand Labs raised US$ 50 million led by Winter Capital, 9Unicorns, Venture Catalysts, Vivriti Capital and Oxyzo on June 16th, 2020.
  • In April- September 2022, India received FDI investments of US$ 3.21 million in the defense manufacturing sector.
  • In May 2022, Italian financial services major Generali completed the acquisition of a 25% stake in Future Generali India Insurance from Future Enterprises for Rs. 1,252.96 crore (US$ 161.92 million).
  • In May 2022, GenWorks Health secured a second round of funding worth Rs. 135 crores (US$ 17.44 million) from a consortium of investors, including Somerset Indus Capital Partners, Morgan Stanley, through its funding arm Grand Vista, Evolvence and Wipro GE.
  • In May 2022, Toplyne, a Software-as-a-Service (SaaS) start-up, raised US$ 15 million in a funding round led by Tiger Global and Sequoia Capital India.
  • In May 2022, Kiranakart Technologies Pvt. Ltd, which runs the 10-minute grocery delivery platform Zepto, raised US$ 200 million in a Series D funding round led by Y Combinator's Continuity Fund, which valued it at US$ 900 million.
  • In May 2022, KoinBasket, a thematic crypto investment start-up, raised US$ 2 million in a pre-seed funding round.
  • In May 2022, Invictus Insurance Broking Services Pvt. Ltd, which runs the Insurtech platform Turtlemint Insurance Services Pvt. Ltd. raised US$ 120 million in a Series E funding round led by Amansa Capital, Jungle Ventures and Nexus Venture Partners.
  • In May 2022, Jaipur-based online furniture and home decor platform Woodenstreet.com raised around US$ 30 million in a Series B funding round led by WestBridge Capital.
  • In May 2022, B2B cross-border tech platform Geniemode received US$ 28 million in a Series B funding round led by Tiger Global and Info Edge Ventures.
  • In January 2022, Google announced a US$ 1 billion investment in Indian telecom Bharti Airtel, which includes an equity investment of US$ 700 million for a 1.28% stake in the company, and US$ 300 million for a potential future investment in areas such as smartphone access, networks and the cloud.
  • ? In 2021, India received R&D investments of Rs. 343.64 million (US$ 4.35 million); this was 516% higher compared to the previous calendar year.
  • Canada's pension fund investment board invested Rs. 1,200 crores (US$ 160.49 million) as an anchor investor in the IPO of multiple Indian companies: One97 Communications (Paytm), Zomato, FSN E-Commerce Ventures (Nykaa) and PB Fintech.
  • The FDI in India's renewable energy sector stood at US$ 949.45 million for the first quarter of FY23. The cumulative FDI inflow in the renewable sector from April 2010 to June 2022 stood at US$ 11.75 billion.
  • In the textile sector, the amount of investment raised through FDI inflows during 2017- 2022 was US$ 1,522.23 million.


ROAD AHEAD


India has become a major global hub for FDIs. According to a survey held in 2020, India was among the top three global FDI destinations; about 80% of the global respondents had plans to invest in India. Furthermore, in recent years, India has provided huge corporate tax cuts and simplified labour laws. The country has also reduced its restrictions on FDI; overall FDI restrictions have reduced from 0.42 to 0.21 in the last 16 years. India has remained an attractive market for international investors in terms of short- and long-term prospects. India's low-skill manufacturing is one of the most promising industries for FDI. India has also developed excellent government efficiency. The developments in government efficiency are primarily due to relatively stable public finances (despite COVID-induced challenges) and optimistic sentiment among Indian business stakeholders concerning the funding and subsidies offered by the government to private firms. All of these factors may enable India to attract FDI of US$ 120-160 billion yearly by 2025.


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