Lok Sabha Question No. 1160 (UNSTARRED), answered on 2025-02-11
Subject: Decline in FDI Inflows
Ministry: COMMERCE AND INDUSTRY
Asked by: Shri Saptagiri Sankar Ulaka, Shri Anto Antony, Adv Gowaal Kagada Padavi

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE

## LOK SABHA

UNSTARRED QUESTION NO. 1160.

TO BE ANSWERED ON TUESDAY, THE 11 TH  FEBRUARY, 2025.

## DECLINE IN FDI INFLOWS

## 1160.  SHRI ANTO ANTONY:

SHRI SAPTAGIRI SANKAR ULAKA:

ADV GOWAAL KAGADA PADAVI:

Will the Minister of COMMERCE AND INDUSTRY be pleased to state:

वाणिज्य एवं उद्योग मंत्री

- (a) whether  the  Government  is  considering  any  reforms  to  Foreign  Direct Investment (FDI) policies to achieve the annual $100 billion FDI target and if so, the details thereof and if not, the reasons therefor;
- (b) the reasons for the decline in FDI inflows to a five year low in 2024, and the steps taken/being taken by the Government to reverse this trend;
- (c) the  progress  made  in  liberalising  FDI  in  sensitive  sectors  such  as  defence, insurance, and telecom, and their contribution to FDI inflows in 2024;
- (d) the details of initiatives taken to address sector-specific barriers and improve India's  attractiveness  as  an  investment  destination,  particularly  in  services, software, and manufacturing, Sector-wise; and
- (e) the expected timeline for achieving the FDI target and the mechanisms in place to monitor progress towards this goal?

## ANSWER

## वाणिज्य एवं उद्योग मंत्रालय में राज्य मंत्री ( श्री णिणिन प्रसाद ) THE MINISTER OF STATE IN THE MINISTRY OF COMMERCE & INDUSTRY (SHRI JITIN PRASADA)

- (a) to (e): The  Government  reviews  the  FDI  policy  on  an  ongoing  basis  and  makes significant changes from time to time, to ensure that India remains an attractive & investor-friendly destination. However, the Government does not fix targets for FDI inflows as FDI is largely a matter of private business decisions. FDI inflows depend on a host of factors such as availability of natural resources, market size, infrastructure, political and general investment climate as well as macroeconomic stability and investment decisions of foreign investors.

The  Government  of  India  always  strives  to  attract  larger  FDI  by  removing regulatory barriers, streamlining processes, developing infrastructure, bettering logistics and improving the business environment by enhancing the Ease of Doing Business (EoDB).

To further strengthen a seamless business regulatory framework across the country and nudge states to promote healthy competition to attract investment including  FDI,  various  initiatives  are  being  undertaken.  The  Government of India  released  Business  Reforms  Action  Plan  (BRAP)  2024  rankings  and Logistics  Ease  Across  Different  States  (LEADS)  2024  report  to  inter-alia communicate to potential investors examples of positive business ecosystem as well as logistics performance undertaken by various States and UTs.

Various initiatives have also been taken to address sector-specific barriers and improve  India's  attractiveness  as  an  investment  destination  in  services, software, and manufacturing, sector-wise and is enclosed as Annexure .

Apart from the above, the Government reviews FDI policy on a regular basis to make  it  more  investor-friendly  and  remove  the  policy  bottlenecks  that  are hindering investment inflows into the country. The extant FDI policy framework follows a negative list approach wherein barring a select few sectors, FDI is permitted up to 100%  in the automatic route, subject to applicable laws/regulations,  security  and  other  conditionalities.  Factors  like  improved global  competitiveness,  a  dynamic  innovation  ecosystem,  and  a  businessfriendly environment have been key drivers.

FDI in the Defence sector is allowed up to 74% through Automatic Route (from earlier 49%) for companies seeking new industrial licenses. Further, 100% FDI in the Telecom Sector is allowed under Automatic Route.  FDI sectoral cap in the insurance sector has been revised from 49% to 74% under the automatic route. The Union Budget 2025 also announced for the further increase of FDI sectoral cap for the insurance sector from 74% to 100%. This enhanced limit will be available for those companies, which invest the entire premium in India.

FDI inflow in India stood at USD 36.05 billion in 2013-14 and has increased since then. India registered its highest annual FDI inflow of USD 84.84 billion in the financial year 2021-22. It has slightly declined post due to the threat of global recession and economic crisis due to geopolitical conflicts and global protectionist measures. However, during the 1 st  half of current FY 2024-25, FDI inflow has increased by 26% in comparison to 1st half of previous FY 2023-24 (i.e.  from  USD  33.51  billion  to  USD  42.10  billion).  The  share  of  Insurance, Telecommunications  and  Defence  Industries,  in  FDI  Equity  Inflows  were 4.13%, 0.63% and 0.009% respectively during FY 2023-24.

This reflects India's growing appeal as a global investment destination, driven by  a  proactive  policy  framework,  a  dynamic  business  environment,  and increasing international competitiveness. FDI has played a transformative role in India's development by providing substantial non-debt financial resources, fostering technology transfers, and creating employment opportunities.

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## ANNEXURE REFERRED TO IN REPLY TO PARTS (a) & (e) OF THE LOK SABHA UNSTARRED QUESTION 1160 FOR ANSWER ON 11.02.2025.

The details of initiatives taken to address sector-specific barriers and improve India's attractiveness  as  an  investment  destination,  particularly  in  Software,  Service,  and Manufacturing Sector are placed below:

## 1. Software Sector:

To  attract  FDI  in  software  sector,  Special  Economic  Zones  (SEZs)  and  Software Technology Parks of India (STPIs) have been setup to promote the growth of the software sector by providing tax benefits, infrastructure support, and regulatory ease. SEZs  offer  tax  incentives,  simplified  regulations,  and  world-class  infrastructure  to attract  foreign  and  domestic  investments  in  IT and  software  development.  Further, STPIs help to promote software development and exports in addition to Governmentbacked incentives like Make in India and Digital India.

## 2. Service Sector:

To address barriers in service sectors, concerted efforts have been put to promote the Startup and Innovation Ecosystem in India. For instance, to stimulate  innovation and attract investments in Startups, the government has abolished the 'angel tax' for all classes of investors, effective from 2025 - 26. This move eliminates a significant hurdle for early-stage companies and their investors.

Further, in the Union Budget 2025 it was announced that a new Fund of Funds with ₹10,000 crore will be established to expand support for Startups.

## 3. Manufacturing Sector:

The  Government  has  undertaken  several  initiatives  to  accelerate  growth  and establish India as a global manufacturing powerhouse. In order to attract investments, 100% FDI is allowed the automatic route in the Manufacturing sector. Launched in 2020, the PLI Scheme is a strategic leap toward self-reliance. Keeping in view  India's  vision  of  becoming  'Atmanirbhar',  Production  Linked  Incentive  (PLI) Schemes for 14 key sectors were announced with an outlay of Rs. 1.97 lakh crore (over  US$26  billion)  to  enhance  India's  Manufacturing  capabilities  and  exports. Further, the Make in India initiative stands as a testament to India's determination  to reshape its manufacturing landscape and enhance its global standing. In addition to ongoing schemes of various Ministries and Departments, the Government has  taken various steps to boost shares of manufacturing in Gross Value Added (GVA). These measures  include Public  Procurement  (Preference  to  Make  in  India)  Orders, Phased Manufacturing Programme (PMP) and QCOs (Quality Control Orders) etc. The  initiatives  taken  by  the  Government  have  contributed  to  69% increase in FDI equity inflow in the manufacturing sector, rising from USD 98 billion in 2004-2014 to USD 165 billion in 2014-2024.

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