Explained National

Modi 2.0 – Boosting FDI Aided Economic Growth Trajectory

FDI Economic Growth

India has received highest ever FDI of US $ 64.37 billion in FY 2019.  Over the last five years, FDI worth the US $286 billion were received in the country. FDI played a critical factor in determining growth prospects of the country, where in addition to capital support, FDI brings in other resources including technological know-how, industry best practices & global experience.

The FDI inflows were $45.14 billion during 2014-15 when the Modi government assumed power. The inflows were $55.55 billion in the following year. The numbers were surpassed year after year, registering all-time high records, which in FY 2019 touched the US $ 64.37 billion, marking 6% growth over the previous year.

In the first quarter of 2019-20 Foreign direct investment (FDI) equity inflows rose by 28% to $16.3 billion from $12.7 billion in the year-ago period. Singapore remains the top source of FDI at $5.3 billion, followed by Mauritius ($4.6 billion). The telecommunication sector played a dominant role in FDI inflow figuring $4.2 billion, followed by the services sector ($2.8 billion).

The Modi governments approach to sustain the growth momentum and upholding its credential of continuing reform process led further boost to FDI aided economic growth trajectory. The cabinet recently approved budget announcement regarding, easing local sourcing norms for FDI in single-brand retail sector. The policy reform will lead to greater flexibility and ease of operations and allowing online sales before the opening of retail stores. These measures will benefit in terms of creation of jobs in logistics, digital payments, customer care, training, and product skilling.

Additionally, 100% FDI in commercial coal mining as well as in contract manufacturing through the automatic route is also made effective, making India attractive destination for foreign investments in coal mining as well as sell and export of coal. It also provides support to the thermal power plants and might reduce dependency on imported coal. In the case of contract manufacturing, this allows foreign investors to directly invest in domestic or foreign contract manufacturers.

The recent announcements are in tandem with, the way in the last 5 years Modi government has unleashed FDI policy reforms driving India’s economic growth.  This has also enhanced the stream of non-debt finance for the economic development of the country. The Total FDI into India from 2014-15 to 2018-19 has been the US $ 286 billion as compared to the US $ 189 billion in the 5 years before that (2009-10 to 2013-14). The significant increase in FDI during 2014-15 to 2018-19  is reflection of upward trend of India’s growth trajectory not only in terms of FDI inflow but also increased employment, technological advancement as well as  better integration into global value chain of production of goods and services and also become part of the global financial system to mobilise global savings, such as pension, insurance and sovereign wealth funds.