-Suhani Prakash
Based on the Economic Survey 2023-24, digital Foreign Direct Investment (FDI) rose from 46.6% of total FDI in FY17 to 69.2% in FY21. Physical FDI mostly consisting of sectors such as automobiles, pharmaceuticals, and construction was approximately three times the value of digital FDI, comprising computer services, telecommunications, consultancy services, and information and broadcasting.
Non-equity modes of international production, like contract manufacturing, third-party outsourcing, or franchising has been cited as one of the major factors that has led to this transformation towards digital FDI. The work-from-home culture that emerged during the Pandemic led to improvisation in the digital infrastructure, which resulted in the share of digital FDI in total FDI rose from 46.6% in FY17 to 69.2% in FY21.
Reportedly, investment intentions in emerging and futuristic sectors like renewables, artificial intelligence, data centers, electric vehicles and batteries, green hydrogen, and semiconductors have seen a rapid increase. With multinational companies such as Accenture, Deloitte and Microsoft announcing investments, India was amongst the top nations for AI-related FDI in 2022. Even when the Indian economy was experiencing a hike in FDI inflows, the investments were concentrated in a limited number of sectors rather than being spread across various industries.
Both the sectors have witnessed a decline in the FDI inflow in the recent years. Whereas in the industry sector the FDI dipped from 0.62% to 0.39%, the service sector witnessed a drop in the FDI from 0.87% to 0.69% in FY20 to FY24. Decline in the Digital FDI is a result of global decrease in investment of tech start-ups that was also evident in India post-Pandemic. Despite a fall in the FDI inflow, a Bloomberg article from April 2024 pointed out that India is not just competing with other developing countries for foreign investment, it is also up against advanced nations that are aggressively promoting their own industries by offering subsidies to attract investors away from India.
