Shift in FDI Landscape: India Sees Growth Despite Challenges

India Ratings reports a significant rise in FDI, reaching USD 28.2 billion in 2023. However, FDI inflow is skewed across sectors and states. Infrastructure spending boosts outlook, but India's global FDI ranking has slipped. Manufacturing policies aim for growth yet face challenges.

In a recent report, India Ratings highlighted a significant surge in foreign direct investment (FDI) inflows, which increased from USD 2.1 billion in 1995 to USD 28.2 billion in 2023. Despite this growth, the distribution of FDI across states and sectors remains uneven.

The report noted that India's share in global foreign direct investments has declined from its peak of 6.5% in 2020 to 2.1% in 2023. India also fell from the 8th position in attracting FDIs in 2022 to the 16th position in 2023, as per the World Investment Report 2024 by UN Trade and Development. The major corridors for FDI inflows are Maharashtra-Gujarat in the West, Karnataka-Tamil Nadu-Andhra Pradesh-Telangana in the South, and the NCR region in the North.

The services sector continues to attract the highest FDI, followed by manufacturing. Specifically, services like banking, insurance, trading, and telecommunications lead the way. In manufacturing, FDI is concentrated in the automobile, chemical, pharmaceutical, metallurgical, electrical equipment, and food processing sectors. Chief Economist Devendra Kumar Pant emphasized that states with better infrastructure and aligned economic policies attract higher FDI.

The government's National Manufacturing Policy of 2011 aims to increase the manufacturing sector's GDP share to 25% and create 100 million jobs. Although the policy has had limited success, the realignment of global supply chains has positioned India as an alternative supply source.

(With inputs from agencies.)