India’s FDI Trends: Key States and Sectors in Focus
Despite a significant increase in foreign direct investment (FDI) inflows over the years, the distribution of these investments across states and sectors remains uneven, according to India Ratings. In 1995, FDI inflows were USD 2.1 billion, which surged to USD 28.2 billion in 2023. However, India’s share in global FDI has declined from 6.5% in 2020 to 2.1% in 2023, and the country slipped to the 16th position in attracting FDIs in 2023 from the 8th position in 2022.
The FDI inflows in India are concentrated in three key corridors: Maharashtra-Gujarat in the West, Karnataka-Tamil Nadu-Andhra Pradesh-Telangana in the South, and the NCR region (Delhi and Haryana) in the North. The services sector continues to attract the highest FDI, followed by manufacturing. Within services, banking/insurance, trading, and telecommunications are the top sectors, while in manufacturing, automobiles, chemicals, drugs and pharmaceuticals, metallurgical, electrical equipment, and food processing are the main areas of investment.
Devendra Kumar Pant, Chief Economist at India Ratings and Research, stated that better infrastructure and growth potential are crucial for attracting higher FDI. States that align their economic policies with national-level policies tend to attract more FDI and have better growth prospects.
The National Manufacturing Policy, 2011 aimed to increase the share of manufacturing in GDP to 25% within a decade and create 100 million jobs. However, India has had limited success in attracting higher FDI in the manufacturing sector. Paras Jasrai, Senior Analyst at India Ratings and Research, emphasized the importance of a strong manufacturing sector for stable growth and employment generation.
FDI as a percentage of GDP and Gross Fixed Capital Formation (GFCF) has increased over the years but peaked during the COVID-19-impacted year (FY21) and has been on a declining trend since then.
Doubts Revealed
FDI -: FDI stands for Foreign Direct Investment. It means when people or companies from other countries invest money in businesses or projects in India.
USD -: USD stands for United States Dollar. It is the currency used in the United States and is often used to measure international investments.
1995 -: 1995 is a year. It is used here to show how much FDI India received in that year compared to now.
2023 -: 2023 is the current year. It is used to show the latest amount of FDI India has received.
Services sector -: The services sector includes businesses that provide services rather than goods. Examples are banking, insurance, trading, and telecommunications.
Banking/insurance -: Banking and insurance are parts of the services sector. Banking involves managing money, while insurance provides protection against risks.
Telecommunications -: Telecommunications is about communication over long distances, like phone and internet services.
Manufacturing -: Manufacturing is making products in factories. It includes making things like cars, clothes, and electronics.
Infrastructure -: Infrastructure means the basic systems and structures needed for a country to work well, like roads, bridges, and power supplies.
India Ratings -: India Ratings is a company that gives opinions on how good or bad the financial health of companies and projects in India is.
