Modi Govt's FDI Focus: Boost To Indian Tech, Fostering Economy

On 30 May 2023, the central government led by Prime Minister Narendra Modi completed its nine years of tenure. The government, which has been in power since 2014 is known for achieving milestones. Especially, its Foreign Direct Investment (FDI) focus is being looked at as a crucial attempt to liberalise India’s FDI. 

Earlier, attracting external investments weren't easy and they proved to be tough for the international majors from the technology sector. But the Modi government’s FDI reforms eased the difficulties by bringing in changes, claim reports. Let’s quickly understand the saffron party’s focus on global companies that are likely to boost Indian Technology.

Modi Government FDI Reforms

According to the ‘Center For Statistics & International Studies’ (CSIS), the Modi government brought a velocity of change in FDI, executing 37 reforms in its first three years in power easing India’s restrictive foreign direct investment rules. 

The majority of changes to the FDI regime were marked in the second year of Modi regime. During the first year, the government attracted USD 33.8 billion in fresh foreign equity investments. The number jumped to USD 40.7 billion in the second year and USD 44.5 billion in the third year.

What is FDI? 

In simple terms, FDI means when a company or government from one country buys an asset or a stake in a business in another country

"Global companies see India as a lucrative market to tap into, driving their interest in establishing a presence in the country. The Indian government has implemented various initiatives and policies to promote foreign investment and facilitate the growth of the technology sector. Initiatives like 'Make in India,' 'Digital India,' and various tax incentives have attracted global companies to establish a presence in India”, said Vineet Verma, Managing Director, World Trade Centre (WTC) Bengaluru, Chennai and Kochi.

“By focusing on attracting global companies, India has been able to leverage its strengths, including a skilled workforce, cost advantage, supportive policies, and a growing market, to emerge as a technology and services hub”, he added.

Reports suggest that the Centre is continuously spearheading national programme related to AI research and technology development. In 2018, the budget allocation for digital India under the government’s initiative to promote AI, ML, 3D printing, and other technologies, was almost doubled to Rs 3,073 crore.

Commenting on PM Modi’s leadership, Vidushi Kapoor, Co-founder, and CEO of Process9 said, “Under the leadership of Prime Minister Modi, our government's initiatives such as the 'Make in India' program and the 'Startup India' campaign are playing a vital role in fostering favourable environment for tech-driven initiatives to thrive. These initiatives are empowering homegrown startups and nurture a strong culture of innovation and entrepreneurship. Further Centre’s efforts on attracting FDI from tech companies shall have a profound impact on our nation's growth and its emergence as a global technology and services hub”.

As per the Ministry of Commerce and Industry, India got the highest annual FDI inflow of USD 83.57 billion in the financial year 2021-2022. The country is rapidly emerging as a preferred investment destination with an increased 20-fold FDI inflow in the last 20 years.

Shruti Jain, CSO of Arihant Capital, emphasised India’s FDI growth and said, the government is continuously putting efforts to prioritise technology and FDI investments. She added Centre’s incentives offerings for various semiconductor-related domains contribute to India's self-reliance journey and help in reducing the country’s import dependency in critical technology areas.

Jain stressed that the government's vision aligns with the broader goal of transforming India into a global technology and manufacturing hub. By attracting FDI, India can tap into external expertise and encourage collaboration between Indian and foreign companies, fostering knowledge-sharing and skill enhancement.

According to media reports, Robert Chatwani, President and General Manager, Growth at DocuSign, recently underlined the ease for global companies, especially in technology zones, to establish a footprint in India compared to a decade ago. He applauded Modi government's big focus on attracting FDI from tech companies.

Key Highlights Of FDI Inflow In India 

With FDI clocking USD 83.57 billion in FY 2021- 2022, India’s foreign investment reached its peak. In comparison, the FDI stood at USD 45.15 billion in 2014-2015. The surge noticed post covid was an overall increase of 23 per cent from March 2020 to March 2022, i.e., USD 171.84 billion in comparison to the FDI inflow reported pre-Covid (USD 141.10 billion) from February 2018 to February 2020, according government data.

In terms of top country-wise investors in FDI Equity inflow, Singapore stood at the top with 27 per cent, followed by the USA at 18 per cent and Mauritius at 16 per cent in FY 2021-2022

The details of total FDI inflows reported during the financial years 2018-2019 to 2021-2022 are as under:

Overall, if we look at FY 2021-2022, the computer software and hardware sector emerged as the top recipient sector of FDI Equity inflow with around 25 per cent share, followed by the services sector (12 per cent) and the automobile industry (12 per cent), as per government data.

Under the sector ‘computer software and hardware’, the major recipient states of FDI Equity inflow were Karnataka (53 per cent), Delhi (17 per cent) and Maharashtra (17 per cent) during FY 2021-2022. Subsequently, the financial year’s total FDI Equity inflow was also topped by Karnataka with 38 per cent share, followed by Maharashtra (26 per cent) and Delhi (14 per cent).