Foreign Investment In India: Who's Leading The Pack?

India has experienced rapid economic expansion, with a large labour market, enabling policies, and an expanding digital economy. In the fiscal year 2023, Singapore was the country with the highest foreign direct investment (FDI) in India, valued at US$17.20 billion. Singapore was followed by Mauritius (US$6.13 billion), the US (US$6.04 billion), the UAE (US$3.35 billion), and the Netherlands (US$2.49 billion). The UK, Japan, Cyprus, Cayman Islands, and Germany also made significant FDI equity inflows.

Singapore's FDI in India

Singapore is the leading source of foreign direct investment (FDI) in India. In the financial year (FY) 2024, Singapore's FDI equity inflow into India was valued at over $11 billion, accounting for roughly 24% of total FDI inflows into the country. This is a notable increase from FY2022, when Singapore invested $15.9 billion, which accounted for 27% of India's total FDI.

Singapore has consistently been one of the top investors in India for over a decade. From April 2000 to March 2023, Singapore was the second-largest source of FDI equity inflow into India, contributing 23% of investments, valued at $148.16 billion.

Singapore's FDI has played a significant role in the development of India's economy, often resulting in the opening of factories and increased employment in the country. The sectors that received the most FDI inflows in India during FY2023 were computer software and hardware, services, trading, drugs and pharmaceuticals, the automobile industry, chemicals, and construction.

US FDI in India

The United States is one of the top investor countries in India. In the financial year (FY) 2022, the US was the second-largest source of foreign direct investment (FDI) in India, with a total investment of $10.5 billion, accounting for 18% of India's total FDI inflows.

In FY 2023, the US was the fourth-largest source of FDI in India, with an investment of $6.04 billion. This accounted for 9% of India's FDI equity inflows during the period from April 2000 to March 2023.

The US investments in India in 2023 were valued at approximately $49.56 billion. The total direct position of the US abroad amounted to $6.68 trillion that year. US direct investment abroad is defined as ownership by a US investor of at least 10% of a foreign business. The US direct investor is known as a US parent, and the US-owned foreign business is a foreign affiliate.

In FY 2024, the US FDI inflow into India decreased to an estimated $5 billion, down from $6 billion in FY 2023.

Mauritius FDI in India

Mauritius is the main provider of foreign direct investment (FDI) to India. Between 2000 and 2017, Mauritius was the largest source of FDI to India, accounting for 34% of all FDI received. From April 2000 to March 2023, Mauritius was the top source of FDI equity inflow into India, accounting for 26% of investments worth US$163.87 billion.

The reason for this is Mauritius's status as a tax haven. Between 2001 and 2011, 39.6% of FDI to India came from Mauritius. The country's low 3% capital gains tax, quality regulatory framework, professional labour, geographical proximity, cultural affinities, and historical ties with India make it an attractive conduit for investments into India.

The Double Taxation Avoidance Agreement (DTAA) between India and Mauritius has helped Mauritius develop its financial services industry, while India has benefited through FDI and job creation. However, the DTAA has also been misused by investors to avoid paying taxes by routing investments through various countries, particularly Mauritius and Singapore, which together account for 48% of FDI inflow to India.

In 2016, the Indian government amended its tax treaty with Mauritius, Singapore, and Cyprus. The preferential tax benefits were partially removed starting in the fiscal year 2017 and will be removed entirely starting in fiscal year 2019.

In fiscal year 2023, Singapore was the top FDI provider to India, with Mauritius coming in second. Singapore accounted for roughly 24% of total FDI inflows, valued at over $11 billion, while Mauritius contributed over $7 billion. In the previous fiscal year, the amount of FDI inflow from Mauritius to India was $6.1 billion, and it was projected to be about $8 billion for fiscal year 2024.

UAE FDI in India

Foreign direct investment (FDI) plays a significant role in India's economic development. In the financial year 2022, India received a record FDI inflow of US$84.8 billion, despite headwinds in the global and domestic economic environment. In 2023, Singapore was the top source of FDI equity inflow into India, with US$17.2 billion, followed by Mauritius (US$6.13 billion), the US (US$6.04 billion), the UAE (US$3.35 billion), and the Netherlands (US$2.49 billion). The UAE's FDI inflow into India for 2024 was projected to be US$2.9 billion, a decrease from the previous fiscal year.

The UAE has been an important source of FDI for India, with the two countries sharing a close economic relationship. In 2019, India sought investments from the UAE in various sectors, including infrastructure and energy. The India-UAE High-Level Task Force on Investment was established in 2012 to address issues associated with existing investments and to discuss ways to increase investment and cooperation between the two countries. During the 2020 World Expo in Dubai, India showcased its advances in space, pharmaceuticals, information technology, renewable energy, and telecom sectors, as well as its strength in innovation and startups.

The UAE's FDI in India has focused on several key sectors. These include petroleum and natural gas, food processing, civil aviation, railways, renewable energy, infrastructure, shipping, and construction. The UAE's investment in these sectors has contributed to India's economic growth and development, creating opportunities for both countries.

In conclusion, the UAE has been a significant contributor to India's FDI inflows, and the relationship between the two countries continues to offer prospects for further investment and cooperation across a range of sectors.

FDI in India's computer software and hardware sector

India's computer software and hardware sector has been one of the fastest-growing sectors in the Indian economy. In the first half of the 2007-08 fiscal year, the foreign direct investment (FDI) inflow in this sector was 0.3 billion USD. The computer software industry in India has witnessed a growth of 28% CAGR over the past five years.

The total contribution of Information Technology and ITES is estimated to have grown by 7% in the 2007-08 fiscal year, compared to 4.8% in 2005-06, to the Gross Domestic Product of India. The computer hardware industry in India accounted for about 1.4 billion USD in the entire electronics hardware industry in the 2005 financial year. This includes PCs, servers, and laptops.

In the 2020-21 fiscal year, FDI in the computer software and hardware sector increased to 26.14 billion USD, a more than threefold increase, according to data from the Department for Promotion of Industry and Internal Trade. This increase is attributed to significant growth in the country's technology space, with businesses rapidly digitising their processes. The sector accounted for about 43% of the total foreign inflows that India attracted that year.

In the 2022 financial year, the computer software and hardware sector was the leading FDI-receiving sector in India, receiving investments worth 14.5 billion USD (24.6%) of the total investment in India. This was followed by the services sector with 7.1 billion USD (12.1%), the automobile industry with 7 billion USD (11.9%), trading with 4.5 billion USD (7.7%), and infrastructure construction with 3.2 billion USD (5.5%).

In the 2023 financial year, the computer software and hardware sector continued to receive the highest FDI inflows in India, attracting investments worth 9.39 billion USD. The services sector was the second-highest recipient of FDI, totalling 8.7 billion USD, covering financial, banking, insurance, and business services.

In the 2024 financial year, the computer sector was again the sector with the highest FDI inflow, with 7.97 billion USD in foreign direct investment equity inflow. This, however, was a significant decrease compared to previous years.

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