Subject: Economy

India's evolving Foreign Direct Investment (FDI) landscape has become crucial for economic growth, with the country attracting $81.04 billion in FY24-25, marking a significant 14% increase from the previous year.

Need for FDI in Indian Economy

• Capital Formation: FDI serves as a critical source of non-debt financing, helping bridge the domestic savings-investment gap and promoting sustainable economic development.

• Technology Transfer: Facilitates the adoption of advanced technologies and best practices, enhancing productivity across sectors (e.g., Manufacturing sector receiving the largest share of equity inflows).

• Employment Generation: Creates both direct and indirect employment opportunities, particularly in labor-intensive sectors like manufacturing and services.

• Global Integration: Strengthens India's position in global value chains and enhances export competitiveness through knowledge transfer and market access.

Gap Between MOUs and Actual FDI

• Regulatory Hurdles: Complex approval processes and multiple clearance requirements delay project implementation.

• Infrastructure Constraints: Inadequate physical and digital infrastructure affects project viability and execution.

• Land Acquisition Issues: Difficulties in land acquisition and rehabilitation processes create implementation delays.

• Policy Uncertainty: Frequent changes in regulations and tax policies affect investor confidence.

Remedial Steps to Increase Actual FDI

• Policy Reforms: Implementation of investor-friendly measures like Jan Vishwas 2.0 and increasing sectoral caps (e.g., Insurance sector FDI limit raised to 100%).

• State-Level Initiatives: Introduction of Investment Friendliness Index of States to promote healthy competition and improve ease of doing business.

• Infrastructure Development: Strengthening physical and digital infrastructure through programs like PM Gati Shakti and National Infrastructure Pipeline.

• Single Window Clearance: Streamlining approval processes and establishing efficient grievance redressal mechanisms.

• Skill Development: Enhancing workforce capabilities to meet industry requirements and attract high-value investments.

The transformative potential of FDI in India's growth story is evident from the substantial inflow of $748.78 billion over the past eleven years. With continued reforms and strategic focus on ease of doing business, India can further strengthen its position as a preferred investment destination, particularly in sectors like services, computer software, and manufacturing.