FDI numbers in 2020-21
Measures taken by the Government on the fronts of Foreign Direct Investment (FDI) policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country. The following trends in India’s Foreign Direct Investment are an endorsement of its status as a preferred investment destination amongst global investors:
- India has attracted the highest ever total FDI inflow of US$ 81.72 billion during the financial year 2020-21 and it is 10% higher as compared to the last financial year 2019-20 (US$ 74.39 billion).
- FDI equity inflow grew by 19% in the F.Y. 2020-21 (US$ 59.64 billion) compared to the previous year F.Y. 2019-20 (US$ 49.98 billion).
- In terms of top investor countries, ‘Singapore’ is at the apex with 29%, followed by the U.S.A (23%) and Mauritius (9%) for the F.Y. 2020-21.
- ‘Computer Software & Hardware’ has emerged as the top sector during F.Y. 2020-21 with around 44% share of the total FDI Equity inflow followed by Construction (Infrastructure) Activities (13%) and Services Sector (8%) respectively.
- Under the sector `Computer Software & Hardware’, the major recipient states are Gujarat (78%), Karnataka (9%) and Delhi (5%) in F.Y. 2020-21.
- Gujarat is the top recipient state during the F.Y. 2020-21 with 37% share of the total FDI Equity inflows followed by Maharashtra (27%) and Karnataka (13%).
- Majority of the equity inflow of Gujarat has been reported in the sectors `Computer Software & Hardware’ (94%) and `Construction (Infrastructure) Activities’ (2%) during the F.Y. 2020-21.
- The major sectors, namely Construction (Infrastructure) Activities, Computer Software & Hardware, Rubber Goods, Retail Trading, Drugs & Pharmaceuticals and Electrical Equipment have recorded more than 100% jump in equity during the F.Y. 2020-21 as compared to the previous year.
- Out of top 10 countries, Saudi Arabia is the top investor in terms of percentage increase during F.Y. 2020-21. It invested US$ 2816.08 million in comparison to US$ 89.93 million reported in the previous financial year.
- 227% and 44% increase recorded in FDI equity inflow from the USA & the UK respectively, during the F.Y. 2020-21 compared to F.Y.2019-20.
FDI Policy Shifts in 2020
Of late there were several key changes to the regulatory framework for FDI in India.
In February 2020, the Department for Promotion of Industry and Internal Trade (“DPIIT”) issued a clarification on the FDI policy on Single Brand Retail Trading. It provided that if foreign investment in Single Brand Retaining exceeds 51%, then 30% of the value of the goods procured should be sourced from India. The clarification states that goods sourced from units located in Special Economic Zones (SEZs) in India would also qualify to meet the 30% mandatory criterion of sourcing from India.
In March 2020, the Cabinet approved the amendment to the FDI Policy to permit FDI in Air India Ltd. by Non-Resident Indians (NRIs) up to 100% under the automatic route. In the same month, the Indian Parliament also passed the Mineral Laws (Amendment) Bill, 2020. The amendment provides that companies which do not possess any prior coal mining experience in India and/or have mining experience in other minerals or in other countries may participate in auction of coal/lignite blocks.
In September 2020, the DPIIT issued a revision to the FDI Policy in the defence sector. Investment through the automatic route was increased from 49% to 74%. Investment beyond 74% now requires Government approval “wherever it is likely to result in access to modern technology or for other reasons to be recorded.”
In October 2020, India issued a consolidated FDI policy. The Policy superseded the previous Press Notes, Circulars, etc. and consolidated the same into a single policy. In Press Note 4 of 2019, the Government had permitted FDI up to 26% FDI through the Government approval route for entities engaged in uploading/streaming of news and current affairs through digital media. On October 16, 2020, the DPIIT clarified that this decision would apply to (a) digital media entities streaming/uploading news and current affairs on websites, apps or other platforms; (b) news agencies which gather, write and distribute/transmit news, directly or indirectly, to digital media entities and/or news aggregators; and (c) news aggregators, being entities, which using software or web applications, aggregate news content from various sources such as news websites, blogs, podcasts, video blogs, user submitted links, etc. in one location.
In February 2020, the Department for Promotion of Industry and Internal Trade (“DPIIT”) issued a clarification on the FDI policy on Single Brand Retail Trading. It provided that if foreign investment in Single Brand Retaining exceeds 51%, then 30% of the value of the goods procured should be sourced from India. The clarification states that goods sourced from units located in Special Economic Zones (SEZs) in India would also qualify to meet the 30% mandatory criterion of sourcing from India.
In March 2020, the Cabinet approved the amendment to the FDI Policy to permit FDI in Air India Ltd. by Non-Resident Indians (NRIs) up to 100% under the automatic route. In the same month, the Indian Parliament also passed the Mineral Laws (Amendment) Bill, 2020. The amendment provides that companies which do not possess any prior coal mining experience in India and/or have mining experience in other minerals or in other countries may participate in auction of coal/lignite blocks.
In September 2020, the DPIIT issued a revision to the FDI Policy in the defence sector. Investment through the automatic route was increased from 49% to 74%. Investment beyond 74% now requires Government approval “wherever it is likely to result in access to modern technology or for other reasons to be recorded.”
In October 2020, India issued a consolidated FDI policy. The Policy superseded the previous Press Notes, Circulars, etc. and consolidated the same into a single policy. In Press Note 4 of 2019, the Government had permitted FDI up to 26% FDI through the Government approval route for entities engaged in uploading/streaming of news and current affairs through digital media. On October 16, 2020, the DPIIT clarified that this decision would apply to (a) digital media entities streaming/uploading news and current affairs on websites, apps or other platforms; (b) news agencies which gather, write and distribute/transmit news, directly or indirectly, to digital media entities and/or news aggregators; and (c) news aggregators, being entities, which using software or web applications, aggregate news content from various sources such as news websites, blogs, podcasts, video blogs, user submitted links, etc. in one location.
Restriction on Chinese opportunistic Investments
In a step what could be best described as India echoing the words of other sovereign nations, the Government of India through Press Note 3 (2020 Series) dated April 17, 2020 (“Press Note”) amended its Foreign Direct Investment Policy to curb the opportunistic takeovers / acquisitions of Indian companies due to the current Covid-19 pandemic.
In this regard, Para 3.1.1 of the extant Consolidated Foreign Direct Investment Policy, 2017 (“FDI Policy”) has been revised to state that any investment by an entity of a country, which shares land border with India, or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can be made only upon seeking prior approval of the Government.
Accordingly, any investment being made from Bangladesh, China, Pakistan, Nepal, Myanmar, Bhutan and Afghanistan (“Neighbouring Countries”) or where the beneficial owner of an investment into India is situated in or is a citizen of any of the aforementioned countries (“Neighbouring Country Investments”), shall require prior approval of the Government regardless of the sector/activities in which investment is being made.
In a subsequent notification, it was stated that a transfer of ownership of any existing entity or future FDI in an entity in India, directly or indirectly, resulting in beneficial ownership falling within this restriction would require mandatory government approval. Therefore, investors from India's neighbouring countries will need to seek Indian government's approval before taking their investment forward – for the foreseeable future.
In this regard, Para 3.1.1 of the extant Consolidated Foreign Direct Investment Policy, 2017 (“FDI Policy”) has been revised to state that any investment by an entity of a country, which shares land border with India, or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can be made only upon seeking prior approval of the Government.
Accordingly, any investment being made from Bangladesh, China, Pakistan, Nepal, Myanmar, Bhutan and Afghanistan (“Neighbouring Countries”) or where the beneficial owner of an investment into India is situated in or is a citizen of any of the aforementioned countries (“Neighbouring Country Investments”), shall require prior approval of the Government regardless of the sector/activities in which investment is being made.
In a subsequent notification, it was stated that a transfer of ownership of any existing entity or future FDI in an entity in India, directly or indirectly, resulting in beneficial ownership falling within this restriction would require mandatory government approval. Therefore, investors from India's neighbouring countries will need to seek Indian government's approval before taking their investment forward – for the foreseeable future.
FDI in Multibrand retail
The FDI Policy permits 51 percent foreign investment in multi-brand retail, subject to approval of the Indian government and fulfilment of certain conditions including the foreign investor needing to bring in a minimum of $100 million; 50 percent of the total foreign investment being invested in backend infrastructure (including investment towards processing, manufacturing, storage etc.); and the multi-brand retail stores having to be set up only in cities with a population of more than 1 million. However, no FDI is permitted in e-commerce multi-brand retail. The Indian government also views e-commerce platforms operating on an inventory-based model as disguisedly engaging in multi-brand retail.
