As per the World Investment Report 2022, India held the eighth position among the primary global recipients of Foreign Direct Investment (FDI) until the year 2020.  According to the World Investment Report 2023, India emerges as the FDI powerhouse and secures the third-highest foreign investment in 2021-22. This FDI has come from more than 101 countries that have invested across 31 UTs and States and 57 sectors in the country.
Foreign direct investment (FDI) is a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy. Ownership of 10 percent or more of the voting power in an enterprise in one economy by an investor in another economy is evidence of such a relationship.
FDI is a key element in international economic integration because it creates stable and long-lasting links between economies. FDI is an important channel for the transfer of technology between countries, promotes international trade through access to foreign markets, and can be an important vehicle for economic development. The indicators covered in this group are inward and outward values for stocks, flows and income, by partner country and by industry and FDI restrictiveness.
In 2014-2015, FDI inflow in India stood at a mere 45.15 USD billion as compared to the highest ever annual FDI inflow of USD 83.57 billion reported during the financial year 2021-22 overtaking last year’s FDI by USD 1.60 billion despite military operation in Ukraine and COVID-19 pandemic. India’s FDI inflows have increased 20-fold since FY 2003- 2004, when the inflows were USD 4.3 billion only.

The following trends in India’s Foreign Direct Investment inflow are an endorsement of its status as a preferred investment destination amongst global investors.
It may be noted that FDI inflow has increased by 23% post-Covid (March 2020 to March 2022: USD 171.84 billion) in comparison to FDI inflow reported pre-Covid (February 2018 to February 2020: USD 141.10 billion) in India.
Country wise
In terms of top investor countries of FDI Equity inflow, ‘Singapore’ is at the apex with 27%, followed by the U.S.A (18%) and Mauritius (16%) for the FY 2021-22.
In FY 22-23 top investor countries of FDI Equity inflow, ‘Mauritius’ is at the apex with 24%, followed by Singapore (23%), the U.S.A (9%), Netherlands (7%) and Japan (6%) emerges as top 5 countries for FDI equity inflows.
Sector-wise
Computer Software & Hardware has emerged as the top recipient sector of FDI Equity inflow during FY 2021-22 with around 25% share followed by the Services Sector (12%) and Automobile Industry (12%) respectively. The top 5 Sectors receiving the highest FDI Equity inflow during FY 2022-23 are Services Sector which includes Finance, Banking, Insurance, Non-Fin/ Business, Outsourcing, R&D, Tech Testing and Analysis and others account for 16% of FDI,  Computer Software and Hardware accounts for 15% FDI, further Trading accounts for (6%), Telecommunication (6%) and Automobile Industry accounts for 5%.
State Wise
 The top 5 States receiving the highest FDI Equity inflow during FY 2022-23 are Maharashtra (29%), Karnataka (24%), Gujarat (17%), Delhi (13%) and Tamil Nadu (5%)
FDI POLICY 2020 
The Department of Industry and Internal Trade, Government of India released the consolidated Foreign Direct Investment (FDI) policy 2020, which is a single document containing all the decisions that have been taken by the Government with respect to FDI. As per the Commerce and Industry Ministry, the policy has come into effect from October 15, 2020.
There are the two Routes through which FDI can be made in India:

• Automatic Route: Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from the Government of India for the investment.
• Government Route: Under the Government Route, prior to investment, approval from the Government of India is required. Proposals for foreign direct investment under the Government route, are considered by respective Administrative Ministry/ Department.

The Consolidated FDI Policy, 2020 incorporates restrictions on citizens belonging to neighbouring countries that share a land border with India, including China, to prevent opportunistic takeovers of firms whose operations and finances may have suffered during the lockdowns and due to the general impact of the COVID-19 pandemic. Foreign investments from these neighbouring countries and beneficiaries of such investment in India who are situated in or are citizens of any such country – are to be vetted by the government irrespective of the scope of the investment.

The FDI circular of 2020 states :
An entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country – can invest only under the Government approval route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route. No such investment is allowed from Pakistan in defence, space, atomic energy and sectors/activities that are prohibited for foreign investment.

In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, results in the beneficial ownership falling within the restriction/purview of the above – this will also require Government approval.
Also, the Policy, marked a significant shift in the country's approach towards attracting foreign investments. The policy aimed to liberalize and streamline the FDI regime, making it more conducive for foreign investors to participate in various sectors of the Indian economy. One of the key highlights of the policy was the relaxation of FDI norms across several sectors, including defence, insurance, and single-brand retail trading, among others.

The relaxation of FDI norms in strategic sectors such as defence was a notable aspect of the 2020 policy. The government increased the FDI limit in the defence sector from 49% to 74%, allowing for greater foreign participation in the development of India's defence industry. This move was aimed at fostering technology transfer, boosting domestic manufacturing capabilities, and reducing dependency on imports in the defence sector.
Furthermore, the FDI Policy of 2020 sought to promote ease of doing business in India by simplifying the regulatory framework for foreign investors. It introduced several reforms to streamline procedures and eliminate unnecessary bureaucratic hurdles, thereby enhancing the overall investment climate in the country. The policy emphasized transparency, predictability, and consistency in decision-making processes related to FDI approvals, which was welcomed by the investor community.

Another significant aspect of the 2020 FDI Policy was the emphasis on attracting investments in key priority areas such as infrastructure, healthcare, and manufacturing. The policy provided incentives and concessions to encourage foreign investments in these sectors, which are crucial for driving economic growth, creating employment opportunities, and enhancing competitiveness on a global scale.
However, while the FDI Policy of 2020 aimed to liberalize the investment environment in India, it also incorporated safeguards to protect national interests and security concerns. The policy included provisions for government scrutiny and approval mechanisms for certain sensitive sectors, such as multi-brand retail trading and digital media, to ensure that foreign investments do not compromise India's sovereignty or pose threats to national security.
 
Government Initiatives  
1. In recent years, India has become an attractive destination for FDI because of favourable government policies. India has developed various schemes and policies that have helped boost India's FDI.
2. Due to the Make in India Initiative, FDI equity inflow in the manufacturing sector between 2014-2022 has increased by 57% over the previous 8 years i.e. 2006- 2014.
3. The Foreign Investment Facilitation Portal (FIFP) is a new online single-point interface of the government for investors to facilitate Foreign Direct Investment proposals to evaluate and further authorise them under the Government approval route.
4.  The government is likely to introduce at least three policies as part of the Space Activity Bill in 2022. This bill is expected to clearly define the scope of FDI in the Indian space sector.
5. In September 2021, India and the UK agreed to an investment boost to strengthen bilateral ties for an 'enhanced trade partnership'.
6. Many reforms like National Technical Textiles, Silk Samagra-2 scheme, Seven Pradhan Mantri Mega Integrated Textile Region and Apparel (PM MITRA) Parks, Production Linked Incentive (PLI) Scheme for Textiles to promote the production of Man-Made Fibre (MMF) Apparel, MMF Fabrics and Products of Technical Textiles, and more initiatives are taken by the government to enhance export and to promote FDI in the textile sector.

Conclusion
In conclusion, the Foreign Direct Investment Policy of 2020 represented a significant step towards opening up the Indian economy to foreign investments and fostering greater integration with the global economy. By liberalizing FDI norms, streamlining regulations, and focusing on key priority sectors, the policy aimed to attract investments, stimulate economic growth, and enhance India's competitiveness on the global stage. However, it also recognized the importance of safeguarding national interests and security concerns, striking a balance between openness to foreign investments and protecting India's sovereignty.

-       Written and Reviewed by HSILF Team