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Monday, May 20, 2024

More FDI in services than manufacturing despite govt’s Make-in-India push

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New Delhi: Foreign direct investment (FDI) into the country’s services sector increased to US$ 153.01 billion during April 2014 to March 2022 from US$ 80.51 billion during April 2000 to March 2014, rating firm India Ratings and Research (Ind-Ra) said in a report on Wednesday.

During the same period, FDI in manufacturing increased to US$ 94.32 billion from US$ 77.11 billion.

“This suggests that despite the government’s effort to attract more investments in the manufacturing sector through “Make in India” campaign, the FDI inflow is still tilted in favour of the services sector,” Ind-Ra said.

Ind-Ra analysis noted that despite a significant surge in the FDI inflows over the years, the nature of FDI inflows in terms of countries from where they are originating and the states/sectors where they are being invested remains fairly skewed.

India’s share in global FDIs was just 0.71 per cent in 2001. It had increased steadily to 6.65 per cent in 2020 before dropping to 2.83 per cent in 2021, a difficult year due to the Covid pandemic. Among the emerging market economies, India has done reasonably well in attracting FDIs. Only China has been consistently ahead of India.

According to the World investment Report 2022 of United Nations Conference on Trade and Development (UNCTAD), India is among the top 10 (ranked 7) FDI destinations globally.

From a sectoral perspective, Ind-Ra said that the highest FDI flowed into the services sector, followed by the manufacturing sector (excluding computer hardware) during April 2000 to March 2014 as well as during April 2014 to March 2022.

“While within services, FDI predominantly flowed into trading, telecommunications, banking/insurance, IT/business outsourcing and hotels/tourism, within manufacturing it remained concentrated in segments such as auto, chemicals, drugs and pharmaceuticals, metallurgical and food processing,” the Fitch group company said.

Ind-Ra believes that higher FDI inflows into the services sector could be because doing business in the services sector is less complicated than doing business in the manufacturing sector in India.

“This could also be the reason for the majority of the FDI coming in the manufacturing sector is not a greenfield investment. However, computer software and hardware have done well where the FDI increased to US$ 72.7 billion during April 2014 to March 2022 from just US$ 12.8 billion during April 2000 to March 2014. This sector has seen further traction after the roll out of the PLI (production-linked incentive) scheme with major global brands such as Apple, Samsung, Flextronics, and Nokia announcing big investments in India,” Ind-Ra said.

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