India’s Foreign Direct Investment (FDI) Reached $1 Trillion: Growth of 26% in 1HFY25

India has achieved a significant milestone in its economic growth with gross foreign direct investment (FDI) inflows reaching a remarkable $1 trillion since April 2000. This accomplishment reflects the country’s rising appeal as a global investment hub. In the first half of the current fiscal year, FDI inflows surged by nearly 26%, reaching $42.1 billion, indicating India’s increasing attractiveness to international investors.

This growth can be attributed to a supportive policy framework, a dynamic business environment, and growing global competitiveness.

FDI Inflows Over the Last Decade

Between April 2014 and September 2024, India witnessed a remarkable $709.84 billion in FDI inflows, accounting for 68.69% of the total FDI over the past 24 years. This substantial inflow highlights India’s central role in the global economic landscape, emphasizing its attractiveness as an investment destination.

Factors Driving the Change

India’s success in attracting FDI can be attributed to several factors that enhance its competitiveness and appeal to foreign investors:

1. Competitiveness and Innovation
   India’s rise in global competitiveness has been significant. In 2024, India moved up three positions to 40th in the World Competitive Index, improving from 43rd in 2021. Additionally, India advanced to 40th place in the Global Innovation Index 2023, up from 81st in 2015, showcasing the country’s growing innovation ecosystem and competitive edge.
2. Global Investment Standing
   India has emerged as a major player in attracting greenfield investments. The country was the third-largest recipient of greenfield projects globally, with 1,008 project announcements, according to the World Investment Report 2023. Moreover, international project finance deals in India grew by 64%, further solidifying its position as a key investment destination.
3. Improved Business Environment
   India’s business environment has seen remarkable improvements. The country rose from 142nd in 2014 to 63rd in the World Bank’s Doing Business Report (DBR) 2020. This 79-rank improvement reflects the government’s commitment to streamlining regulations, reducing bureaucratic obstacles, and creating a more favorable business climate, all of which have significantly boosted investor confidence.
4. Policy Reforms
   The Indian government has implemented several policy reforms to promote FDI. Most sectors, with a few strategic exceptions, are now open to 100% FDI under the automatic route. In addition, the 2024 amendment to the Income Tax Act, which abolished angel tax and reduced income tax rates for foreign companies, aims to simplify tax compliance for both startups and foreign investors.

India’s progress in attracting foreign direct investment is a testament to its economic transformation. Key factors driving FDI growth include improved global competitiveness, an innovative business ecosystem, and a more favourable business environment. Initiatives such as “Make in India” and ongoing policy reforms, including greater FDI in the space sector, reflect India’s proactive approach to attracting international capital.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.