In2024, an increase in the inflow of foreign direct investments into India is expected as it remains a preferred destination for investments.

Updated - December24,2023 at12:05 PM.

Foreign companies' investments in India are likely to pick up pace in2024, as healthy macroeconomic indicators, improved industrial production, and attractive PLI schemes will attract more foreign players amid geopolitical tensions and tightening global interest rate regime. In order to keep India an attractive and investor-friendly destination, Rajesh Kumar Singh, Secretary of the Department for Promotion of Industry and Internal Trade (DPIIT), said that the government is constantly reviewing its foreign direct investment (FDI) policy and making changes from time to time after wide consultations with stakeholders.

Direct foreign investments (FDI) into the country decreased by22% in January-September of this year, amounting to48.98 billion rupees. The investment volume was62.66 billion rupees for the same period the previous year.

"Nevertheless, we broadly conform to general trends in FDI growth. The direct foreign investment flows from2014 to2023 amounted to around596 billion rupees, which is double the amount received by India during2005-2014. The trend is positive, and India continues to remain a preferred destination for foreign players," Singh told PTI agency.

"According to him, the schemes."Production Linked Incentive (PLI)For the pharmaceutical, food processing, and medical device sectors, efforts have started to yield results and attract foreign investors.

“Many of these sectors have seen an increase in foreign direct investment,” Singh said.

He noted that the main reasons for the decline in foreign direct investment could be the threat of a global recession, the economic crisis related to the conflict between Russia and Ukraine, and protectionist measures. Additionally, the slowdown in real GDP growth in Singapore, the USA, and the UK could be a factor, as these countries are the main sources of FDI in India.

Singh also emphasized that India continues to open its economy to global investors by increasing FDI limits, removing regulatory barriers, developing infrastructure, and improving the business environment.

Experts also expressed the opinion that despite global challenges, India remains a preferred destination for investment.

The measures taken to support businesses, the availability of a skilled workforce, natural resources, a liberal policy for attracting foreign direct investment, a huge domestic market, and PLI schemes are reasons for optimism regarding the inflow of foreign investments in 2024, according to them.

According to the UNCTAD World Investment Report 2023, the number of announced greenfield projects in developing countries has increased by 37%.

“This is a positive sign for the prospects of investments in industry and infrastructure,” the report notes.

Rumki Majumdar, an economist at the consulting firm Deloitte India, stated that the slowdown in capital flow is a result of tightening global liquidity and geopolitical uncertainty.

“But soon the world will recognize the strength of the fundamental factors that India possesses, and India will see an increase in capital flow,” she said.

Majumdar said that there is genuine interest from major international investors to tap into India's potential and be part of the growth journey that the country is likely to undergo over the next decade.

Anindya Ghosh, a partner at the law firm IndusLaw, noted that it is important to mention that global FDI has also decreased significantly, and India can take comfort in the fact that it is not the only country experiencing the effects of the recent economic downturn.

“Despite numerous concerns about the decline in FDI in India recently, statistics indicate that foreign direct investment flows may see a slight increase in 2024,” said Ghosh.

According to data from the National Statistical Office (NSO), India's economy grew by 7.7% in the first half of the 2023-2024 fiscal year.

The country's foreign exchange reserves exceed $600 billion, and industrial production accelerated to a 16-month high of 11.7% in October, mainly due to double-digit growth in the manufacturing, energy, and mining sectors.

In addition, PLI schemes aimed at enhancing India's manufacturing capabilities and exports in 14 sectors have been announced.

From 2000 to September 2023, the total volume of FDI in India amounted to 953.14 billion rupees. About a quarter of the FDI came from the Mauritius route during the period under review. This is followed by Singapore (23%), the USA (9%), the Netherlands (7%), Japan (6%), and the UK (5%). The UAE, Germany, Cyprus, and the Cayman Islands each accounted for 2%.

Key sectors that attracted the most foreign direct investment (FDI) in India include the services segment, computer software and hardware, telecommunications, trade, construction development, automotive, chemical, and pharmaceutical industries.

In most sectors, foreign direct investment is allowed automatically, while in areas such as telecommunications, media, pharmaceuticals, and insurance, government approval is required for foreign investors.

When attracting investments through the government approval route, a foreign investor must obtain prior consent from the relevant ministry or department, whereas under the automatic approval route, the foreign investor is only required to inform the Reserve Bank of India (RBI) after making the investments.

Currently, foreign direct investment (FDI) is prohibited in certain sectors. These include lotteries, gambling and betting, charitable foundations, non-profit organizations, real estate, and the production of cigars, cheroots, stickies, and cigarettes using tobacco.

FDI is important because India will need huge investments in the coming years to develop its infrastructure and stimulate growth. A healthy inflow of foreign investments also helps maintain the balance of payments and currency stability.