Foreign direct investment (FDI) in India has played a crucial role in the development of the Indian economy. It has enabled the country to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that may have needed economic attention, and address the various problems that continue to challenge the country. India receives FDI in tune of $25 Bn from year 2007 onwards. Investment in India which remained around $5 Bn in 2005 increased successively to touch a surprising figure of $25 Bn. Though this is still a very small number compared to the investment which China, Europe and US get but the growth rate was much more impressive.
Indian Economy which is moving towards a fully fledged service Economy received major investment contribution from Service sector amounting to 21% of cumulative investment in the last 10 years. Computer software and Hardware, telecommunication and Housing & Real Estate have also contributed to this kitty. Off late, especially in last 2 years when the government’s focus on Infrastructure has gone up, the investment in Power and Construction has increased considerably. Looking at the huge requirement, it can be safely deduced that these sectors are likely to carry the momentum forward. The investment in agriculture related activities have not picked up yet due to lower growth in the sector but food processing sector is quickly coming up.
The Sector wise Analysis of FDI Inflow in India reveals that maximum investment in India has come for the service sector including the telecommunication, information technology, travel and many others. The service sector is followed by the manufacturing sector in terms of FDI. High volumes of investment take place in electronics and hardware, automobiles, pharmaceuticals, cement, metallurgical and other manufacturing industries.
The trend analysis of 2009-10 shows that apart from service sector Telecommunication and real Estate has received high investment from abroad. Information Technology (IT) industry is one of the booming sectors in India. At present India is the considered pioneer in IT industry and is leader in the Asia -Pacific region. With more international companies entering the industry, the Foreign Direct Investments (FDI) has been coming consistently over the years. The rapid development of the telecommunication sector was due to the FDI inflows in form of international players entering the market and transfer of advanced technologies. The telecom industry is one of the fastest growing industries in India. Indian telecom industry has the highest growth rate in the world.
The FDI in Automobile Industry has experienced huge growth in the past few years. The increase in the demand for cars and other vehicles is powered by the increase in the levels of disposable income in India. For the past few years the Indian Pharmaceutical Industry is performing very well. The varied functions such as contract research and manufacturing, clinical research, research and development pertaining to vaccines are the strengths of the Pharma Industry in India. Multinational pharmaceutical corporations outsource these activities and help the growth of the sector. The Indian Pharmaceutical Industry has been experiencing a vast inflow of FDI. The FDI inflow in the Cement Industry in India has increased with some of the Indian cement giants merging with major cement manufacturers in the world such Holcim, Heidelberg, Italcementi, Lafarge, etc.
The crux of the analysis is that FDI has helped the Indian economy grow and the investment profile has also been very diverse. While the silver lining is continuous increase in FDI for service sector, the nominal amount of investment for manufacturing and Agriculture is a matter of grave concern. Can India pull up it socks to match Chinese investment profile?