As Major Sources Of Non-Debt Financial Resources, FDIs Enable Economic Expansion And Diversification

Mauritius and Singapore’s dominance can be attributed to their favourable tax treaties with India, which have streamlined and incentivised investment flows

Foreign direct investment (FDI) encompasses more than just the inflow of capital; it also includes the transfer of technology, knowledge, skills, and expertise. The foreign investors not only bring financial resources but also valuable intangible assets that can contribute to the development and growth of the recipient country. This technology and knowledge transfer can enhance domestic industries, improve productivity, and stimulate innovation. By tapping into the expertise and capabilities of foreign investors, host countries can strengthen their own economic sectors and accelerate their overall development.

For the recipient country, FDI serves as a major source of non-debt financial resources, enabling economic expansion and diversification. It provides access to external funding that can be used for infrastructure development, capital investments, and human capital improvement. FDI inflows create employment opportunities, increase income levels, and boost consumer spending, thereby contributing to overall economic growth. Additionally, FDI often brings with it advanced management practices, organizational techniques, and operational efficiencies that can enhance the competitiveness of local industries.

India's FDI hits $1 trillion, and the biggest investor is a small island nation whose GDP is smaller than Himachal Pradesh. The country has achieved a remarkable milestone in its economic journey, with foreign direct investment (FDI) inflows exceeding $one trillion since April 2000, according to data released by the Department for Promotion of Industry and Internal Trade (DPIIT).

This cumulative figure includes equity investments, reinvested earnings, and other capital inflows.

The achievement is underscored by a 26 per cent rise in FDI during the first half of FY 2024-25, reaching $42.1 billion.

The Ministry of Commerce and Industry has stated, “FDI has played a transformative role in India's development by providing substantial non-debt financial resources, fostering technology transfers, and creating employment opportunities.”

Mauritius emerged as the top sources of FDI, contributing 25 per cent of the total inflows, followed closely by Singapore at 24 per cent. The United States ranked third with 10 per cent, while other significant contributors included the Netherlands (seven per cent), Japan (six per cent), and the United Kingdom (five per cent). Smaller contributors like the UAE, Cayman Islands, Germany, and Cyprus, each accounted for two to three per cent of total investments.

Mauritius and Singapore’s dominance can be attributed to their favourable tax treaties with India, which have streamlined and incentivised investment flows.

The services sector led the inflows, including sub-sectors like financial services, IT, and consultancy. Other major beneficiaries were computer software and hardware, telecommunications, trading, and infrastructure development. Manufacturing also saw a 69 per cent increase in FDI over the last decade, propelled by the "Make in India" initiative.

Of the $one trillion in total FDI inflows, $709.84 billion was recorded in the last decade (April 2014 to September 2024). This represents nearly 69 per cent of all FDI received since the turn of the century, indicating a significant acceleration in foreign investments under India's recent economic policies.

India’s rise as a global investment hub is backed by sustained economic reforms.

Most sectors allow 100 per cent FDI under the automatic route, requiring investors to simply notify the Reserve Bank of India (RBI) post-investment. For sectors like telecommunications, media, and insurance, government approval is mandatory and involves prior clearance from the relevant ministry.

India has prohibited FDI in a few areas, such as lotteries, gambling, real estate businesses, and tobacco manufacturing. These restrictions ensure strategic and ethical alignment in investment flows.

Recent policy changes have further eased the investment climate. In 2024, the government abolished the angel tax on startup funding and reduced corporate tax rates for foreign companies. These reforms complement India’s competitive labour costs and its strategic position as the world's fifth-largest economy.

To grasp the scale of $one trillion, consider this: earning $1 per second would take 31,709 years to reach the target. By comparison, the GDP in 2024 is approximately $3.89 trillion, a remarkable rise from $two trillion in 2014.

FDI inflows have spread across 60 sectors and 31 states and union territories, reflecting broad-based investment opportunities. As India aligns with global economic trends and continues reforms, the government expects further growth in FDI.

The ,inistry stated, “As India continues to align with global economic trends, the government believes it is well-positioned to further strengthen its role on the global stage, fostering sustainable growth and development.”

India’s $one trillion FDI milestone is not just a marker of economic achievement but a testament to its growing influence in the global economic order.

FDI has the potential to be a valuable investment plan for economic development.

Towards this the governments must adhere to several rules and regulations and make sure FDI is compatible with the nation’s development goals.