4 sectors attracting maximum FDI in India

Chaitra Anand
·5-min read

The Government of India introduced the Make in India initiative in 2014 to encourage companies to manufacture in India and incentivise dedicated investments into manufacturing.

The approach of the policy was to create a conducive environment for investments, develop a modern and efficient infrastructure, and open up new sectors for foreign capital.

The initiative targeted 25 economic sectors for job creation and skill enhancement, and aimed ‘to transform India into a global design and manufacturing hub’.

Much in line with the government’s intention of opening up sectors for foreign capital, Foreign Direct Investment in India has witnessed a positive trend since the launch of the Make in India campaign in 2014.

FDI inflow from April 2014 to March 2020 ($357.35 billion) is 52.5% of the overall FDI received in the country since April 2000 ($680.91 billion). For the first time, India has crossed the $70-billion mark in FY 2019-20 and recorded total FDI inflow of $73.45 billion.

Of the 25 targeted sectors, these 4 sectors of the economy have been attracting maximum FDI due to ease of policies.

Take a look:

1. SERVICE SECTOR

The Service sector in India includes Financial, Banking, Insurance, Non-Financial/ Business, Outsourcing, Research and Development (R&D), Courier, Tech, Testing and Analysis services. It has the highest contribution of 17% amongst other sectors in terms of total FDI inflow received in the country during April 2000 - March 2020. It also witnessed the highest FDI equity inflow of $7.86 billion in FY 2019-20.

In financial year 2020, the foreign direct investment equity inflow in the services sector in India was worth approximately $7.86 billion. The foreign investment inflows have been consistently increasing over the last five years in this sector.

Overall the business services sector in the country seemed to be faring very well in terms of attention from foreign investors. One possible reason for this could be because almost 56 percent of the registered foreign companies in India were under this sector. Out of this, most companies were registered in the state of Maharashtra, followed by the capital city of Delhi indicating a good business trajectory.

2. AUTO AND AUTO COMPONENTS SECTOR

The Automobile sector in India witnessed a growth of 35.12% in FDI during the last two fiscals (FY 2017-18 to FY 2019-20). FDI equity inflow increased to $2.82 billion during FY 2019-20. The FDI equity inflow received by the sector in FY 2019-20 is 12% of the total equity inflow received by the sector since April 2000 ($24.21 billion).

A stable government framework has led to the development of the Indian auto-components industry. Accounting for 2.3 per cent of India’s Gross Domestic Product (GDP), the sector employs as many as 1.5 million people, both directly and indirectly. The growing presence of global automobile Original Equipment Manufacturers (OEMs) in the Indian manufacturing landscape has significantly increased the localisation of their components in the country.

The Indian auto-components industry has experienced healthy growth over the last few years. The Auto Components industry exports are currently valued at $15.2 billion. India is an emerging global hub for sourcing auto components. It offers a favourable scenario with a trade policy without restrictions on import-export and a 100% FDI inflow.

The auto-component industry of India has expanded by 10.6 per cent to reach a level of $56.2 billion in FY19.

3. TELECOMMUNICATIONS SECTOR

The Telecommunications sector in India saw a substantial growth of 67% in FY 2019-20 in terms of FDI equity inflow, which increased from $2.66 billion in FY 2018-19 to $4.44 billion in FY 2019-20. The sector holds a share of 8% in the total FDI inflow received in the country during April 2000 - March 2020.

Telecommunications is one of the fastest growing industries in India that has undergone an innovative phase over the past few years and stands as the second largest telecommunications market in the world after China. It is due to liberalisation policy that telecom sector could attract more FDI flows in private sector participation increased in total telephone connections of the nation. This led the sector to competitive stimulus, high telecom penetration and substantial reduction in tariffs.

Though foreign telecom players have been present in India for almost more than a decade with tremendous growth, the sector is yet to witness the expected vibrancy and infusion of innovative technologies. FDI in the telecom sector was initially allowed at 74%. It was subject to the condition that companies bringing in FDI shall obtain necessary license from the Telecom Regulatory Authority of India (TRAI) for undertaking telecom activities. But the recent decision government of India did hike FDI limit from 74% to 100% through the Foreign Investment Promotion Board (FIPB) and Government’s consolidated FDI Policy.

4 . CONSTRUCTION DEVELOPMENT SECTOR

The Construction Development sector in India which includes townships, housing, built-up infrastructure and construction development projects has witnessed an exponential growth of about 190% in terms of FDI equity inflow in FY 2019-20. The sector received FDI equity inflow of $213 billion in FY 2018-19 which almost tripled to $617 billion in FY 2019-2020. The sector holds a share of 5% in the total FDI inflow received in the country during April 2000 - March 2020.

The construction industry makes up for a major part of India’s GDP. Being a significant contributor to the GDP of India, the industry acts as a gateway for more opportunities. Investment in the construction industry in India, therefore, directly leads to the country’s economic development. The Construction industry in India consists of the real estate as well as the urban development segment. The Real estate segment covers residential, office, retail, hotels and leisure parks, among others, while urban development segment broadly consists of sub-segments such as Water supply, Sanitation, Urban transport, Schools, and Healthcare.

The sheer demand volume of demand for development coupled with ease of doing business has attracted Foreign Direct Investment (FDI) in this sector.

Source: https://www.fdi.finance/sectors/, www.makeinindia.com, neerajbhagat.com