Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Key Phrases: Ministry of Commerce and Industry, FDI, Ease of Doing Business, . Special Economic Zone, aerospace policy, computer software and hardware.

Context:

• The Ministry of Commerce and Industry has stated that India received the highest foreign direct investment to the tune of $83.57 billion for the financial year 2021-2022.
• This roughly amounts to India receiving 23 crore US$ or Rs. 1775 crores per day FDI in the last 12 months.

What is (Foreign Direct Investment)FDI?

• Foreign direct investment (FDI) takes place when a company takes controlling ownership of a business entity in another country.
• With FDI, foreign companies are directly involved with day-to-day operations in the other country.
• This means they aren’t just bringing money with them, but also knowledge, skills and technology.
• Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.

FDI in India:

• FDI is an important monetary source for India's economic development. Economic liberalisation started in India in the wake of the 1991 crisis and since then, FDI has steadily increased in the country.
• India, today is a part of top 100-club on Ease of Doing Business (EoDB) and globally ranks number 1 in the greenfield FDI ranking.
• Massive skilled human resources: India has massive skilled human resources, besides being rich in natural resources.India has the largest youth population in the world in 2020 according to the United Nations Population Fund.
• FDI increased to 100% in many sectors : In India, the foreign direct investment has been increased to 100% in many sectors. This demonstrates that the government is enthusiastic to invite foreign investors to invest in the majority of the sectors.
• Startup environment and the tech startup ecosystem : The startup environment and the tech startup ecosystem are some of the examples, which have been booming in the country and have also been attracting the highest foreign direct investments.
• Massive consumer market of India : The massive consumer market of India, with high volume and high spending capacity. The Indian consumer market with private consumption will increase four times by 2025.
• High foreign exchange reserves: India has record-high foreign exchange reserves and a disciplined current account deficit thus reducing susceptibility to global economic shocks.
• That is how India’s FDI inflows have jumped 20-fold since FY03-04 when the inflows were at $4.3 billion.

The Case of Karnataka:

• Karnataka has been attracting the highest FDI in the country, for two successive quarters of the fiscal year 2021-2022.
• During these first two quarters of 2021-2022, Karnataka accounted for 48 per cent and 41 per cent of total FDI in India, respectively.By the end of September 2021, Karnataka had received over Rs 1.02 lakh crore in FDI.
• This was adjacent to 45 per cent of the total FDI inflow to India, Rs 2.29 lakh crore.

Factors enabling Karnataka become Favourite FDI destination

1. Special Economic Zone:
   • The state has sector-specific Special Economic Zone (SEZs) for key industries such as IT, biotechnology, and engineering, food processing and aerospace. It has 34 operational SEZs as of October 2020.
2. Installed power generation:
   • Karnataka has an installed power-generation capacity of 30,105.02 MW.
3. National highway projects:
   • 33 national highway projects are being built in Karnataka. These projects include 1,197 km long roads worth Rs. 10,904 crores.
4. Biotechnology companies:
   • More than 60% of the biotechnology companies in India have a base in Bangalore and the state drives 50% of the total revenues in India’s biotechnology sector.
5. Aerospace policy:
   • Karnataka is the first state which came out with an aerospace policy in the country.
   • Karnataka Aerospace Policy has identified an investment potential of US$ 12.5 billion in this sector during 2013-23 and plans to develop aerospace clusters in different regions of the state.
6. IT hub of India:
   • Karnataka is the IT hub of India & home to the fourth-largest technology cluster in the world.
   • Among the sectors receiving the funding, computer software and hardware got the most with around 25 per cent share.
   • Karnataka alone got 53 per cent of the funding in the computer hardware and software sector. Of the total funding Karnataka received, Computer Software & Hardware’ got 35%, Automobile Industry got 20% and `Education’ got 12% during the FY 2021-22.

   

Conclusion:

• Today Karnataka is setting a new benchmark for all other states to follow showing them the road map to attract more and more FDI.
• The government of India has not left any stone unturned in making the country the best destination for foreign investors by making reforms in the FDI policies and the business environment but still there are lot of scopes for improvement.

Source: News On Air

Mains Question:

Q.What is Foreign Direct Investment? Discuss how India can become the number one favourable destination for FDI. (250 Words).