Tatsat Chronicle Magazine

Over Six Lakh Crore FDI Inflow in FY 21-22

July 29, 2022

India has received its highest ever Foreign Direct Investment (FDI) inflow of Rs 6,31,050 crores in Financial Year 2021-22, the Ministry of Commerce and Industry has said. According to the information provided by the ministry, FDI equity inflow in manufacturing sectors increased to Rs 1,58,332 crore in Financial Year 2021-22 from Rs 89,766 crore (FY 2020-21), which is an increase of 76%.

Since the notification of the revised FDI policy, the total inflow in the all-important defence sector has also increased and as per reports. Until May 2022 it stood at approximately ₹494 Crores. The government has put in place a liberal and transparent policy for attracting Foreign Direct Investment (FDI), wherein most sectors, except certain strategically important sectors, are open for 100% FDI under the automatic route.

Subject to the provisions of the FDI Policy, foreign investment in the ‘manufacturing’ sector is under automatic route. Manufacturing activities may be either self-manufacturing by the investee entity or contract manufacturing in India through a legally tenable contract, whether on Principal to Principal or Principal to Agent basis.

Further, a manufacturer is permitted to sell its products manufactured in India through wholesale and/or retail, including through e-commerce, without Government approval. In the defence sector, FDI allowed under the automatic route has been increased up to 74% and up to 100% through the government route.

According to the Minister of State in the Ministry of Commerce and Industry, Som Parkash, India’s monetary and fiscal policies have been positioned to lowering inflation and managing the Current Account Deficit (CAD). Under this overarching framework, monetary and fiscal adjustments are done to address emerging economic issues. Further, the Reserve Bank of India (RBI) has undertaken several measures to enhance forex inflows. These measures include exemption of incremental Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident (External) Rupee (NRE) deposits from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).

It has given permission to banks to raise fresh FCNR(B) and NRE deposits without reference to the extant regulations on interest rates until end-October 2022, the inclusion of all new issuances of G-Secs of 7-year and 14-year tenors under the Fully Accessible Route (FAR) for FPls and exemption of investments by FPls in G-Secs and corporate debt made till October 31, 2022, from short term limit.

RBI has also allowed FPI in commercial paper and non-convertible debentures with an original maturity of up to one year, a temporary increase in the limit for external commercial borrowings (ECBs) under the automatic route from $ 750 million or its equivalent per financial year to US$ 1.5 billion, increase in the all-in cost ceiling under the ECB framework by 100 basis points, subject to the borrower being of investment grade rating, and given permission to AD Cat-I banks to utilise overseas foreign currency borrowings for lending in foreign currency to entities for a wider set of end-use purposes, besides exports.

In the defence sector, the Department of Defence Production (DDP) has brought in a number of Policy reforms for attracting investment, which include assigning of higher multipliers in Offset Policy to attract investment and Transfer of Technology for Defence manufacturing, establishing of two Defence Corridors in Tamil Nadu and Uttar Pradesh which provide Plug and Play support to the industries including FOEMs in the Corridor.

Under the Aerospace and Defence Policy notified by the two State Governments, customised incentive packages are provided to investors based on investment, employment and project location which may include GST based refunds on sales, Stamp duty concessions on land allotment, Electricity Tax exemption, Capital subsidy and Training subsidy for training workers.

The Ministry of Defence has also set up a Defence Investor Cell to provide all necessary information including addressing queries related to investment opportunities, procedures and regulatory requirements for investment in the sector and1445 queries have been addressed by the Cell till date.