India Ratings believes this could be because doing business in the services sector is less complicated than doing business in the manufacturing sector in India
New Delhi: Foreign direct investment (FDI) into the country’s services sector increased to $153.01 billion during April 2014 to March 2022 from $ 80.51 billion during April 2000 to March 2014, shows data analysed by India Ratings and Research.
During the same period, FDI in manufacturing increased to $94.32 billion from $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,” rating firm India Ratings and Research (Ind-Ra) said in a report on Wednesday.
Ind-Ra believes this 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 USD72.7 billion during April 2014 to March 2022 from just USD12.8 billion during April 2000 to March 2014,” it 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.
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,” it said.
Like the sectors, FDIs are also highly clustered around few states. Of the total FDI inflow of $146.7 during October 2019 and March 2022, just four states attracted 83.0% of the FDI with Maharashtra accounting for 27.5%, Karnataka 23.9%, Gujarat 19.1% and Delhi 12.4%.
Although there is no specific reason for clustering of FDIs around only few states, Ind-Ra believes perhaps it is due to the enabling conditions in these states. As a result, three distinct FDI corridors have emerged– NCR of Delhi in the north, Maharashtra-Gujarat in the west and Karnataka-Tamil Nadu-Andhra Pradesh-Telangana in the South.