Although India received an all-time high annual foreign direct investment (FDI) in 2015, the surge is led by the inflows into the services sector rather than manufacturing or infrastructure. The ‘Make in India’ initiative has not yet materialised into FDI inflows.
More than half of total FDI inflows in 2015 came into the services sector, comprising software, financial services, trading, hospital and tourism, according to an analysis of the official data by the Department of Industrial Policy and Promotion and Citi Research. In 2014, the sector accounted for about a third of the gross inflows. FDI into the sector in 2015 was 111 per cent higher than in 2014.
Gross inflows are up more than 30 per cent to about $40 billion. Breakdown of the official data shows that the inflows into the manufacturing sector are up 6 per cent in 2015 after the 19 per cent fall in 2014. FDI into infrastructure in 2015 was marginally lower than in 2014.
While inflows rose significantly into some sectors the BJP-led NDA government opened up, including insurance, construction, broadcasting and tourism, the impact of the FDI liberalisation measures in defence, railways and retail is not visible.
Inflows to construction surged 188 per cent from $1527 million to $4,405 million. Insurance received $581 million against $236 million, a 146 per cent jump. FDI in Railways declined 67 per cent to $71 million from $213 million in the previous year. Air transport too saw lower inflows — $50 million against $73 million. For mining the fall was from $666 million to $547 million. The defence sector is yet to receive FDI.
In the 20 months of the NDA government, India has received total FDI of $85 billon compared to $59 billion in a similar period before that. FDI outflows (Indians investing overseas) declined 37 per cent, confirming the change in investor sentiment.