-Suhani Prakash
1991 saw the introduction of some major economic reforms in India. The country adopted Liberalization, Privatisation and Globalization due to which the Foreign Direct Investments in India witnessed a drastic rise.
However, the post-pandemic period saw a decline in the FDI inflows to India. Pandemic, geopolitical tensions, global economic conditions and many more factors contributed to this phenomenon.
According to the Economic Survey 2024, Net FDI inflows to India dropped from USD 42.0 billion in FY23 to USD 26.5 billion in FY24.
Despite the decline in overall FDI inflows, some states in India have been able to attract a significant amount of foreign investments due to their growing sectors.
FY2021 was the period during the pandemic due to which the FDI inflows were low in all the states. However, the FDI inflow gradually increased in all the states from FY2022 onwards. Gujarat saw a significant increase in Q2 (April-June) of FY2023 where it passed the FDI inflows in Karnataka as well.
FY2022 onwards, the FDI inflow in Karnataka has been declining whereas the inflow in Tamil Nadu is on the rise. Maharashtra has been the state to receive the highest FDI, except in FY2021 and FY2022 where Karnataka topped the list.
The changing dynamics of FDI inflows are influenced by various factors globally and locally. The competition within these Indian states to attract the FDIs also never has a clear winner. Currently, Maharashtra has the highest amount of FDIs but a few years ago Karnataka held that position. Policies, governance, opportunities, sectors and many more factors are responsible for this change.
Maharashtra
Maharashtra’s Deputy Chief Minister Devendra Fadnavis announced that in the April-June Quarter, the state was able to attract 52.46 per cent of FDI inflow in India.
According to the state’s economic survey for 2023-24, Maharashtra had 264 approved projects. The state has the highest number of approved projects with investment worth Rs 59,551 crore.
Mumbai, the financial capital of India also plays an important role in attracting FDIs in Maharashtra. The state also has the highest Gross Domestic Product (GDP) amongst all other Indian states.
Despite the political instability in the state, Maharashtra’s FDI inflow did not see much change from FY2021 to FY2022.
Karnataka
FY2022 saw Karnataka as the state attracting highest FDI inflow amounting to Rs 1,63,795 crore. In 2023, Karnataka was ranked second followed by Maharashtra and by 2024, Karnataka fell down to the third position in terms of FDI inflow.
Compared to other states, the growth of FDI inflow in Karnataka is lower. The rising political tensions in Karnataka has led to a blame game in the state as the current government alleges that the Union government is pushing the investors towards Gujarat and Maharashtra.
“Karnataka attracted investments worth Rs 1.13 lakh crore in in 2023-24 across various sectors such as ESDM, Li-ion battery manufacturing for EVs, core manufacturing, for EVs, core manufacturing (steel), automobiles, data centers, and more” said MB Patil, Minister of Large and Medium Industries.
The unrest caused due to the Job Reservation bill introduced by the government in July, which was put on hold due to the heavy backlash, also attracted negative responses from multinational companies (MNCs) and investors. The political instability in the state is likely to affect the FDI inflow in the upcoming years.
Delhi
Delhi, being the national capital of India, provides a suitable platform for investors as it has resources, population and industries to support the FDI inflows.
New Delhi along with its National Capital Region (NCR) is the base for headquarters of plenty of MNCs and their factories operating in India. Due to the construction of Special Economic Zones (SEZ), the IT sector in Delhi NCR has seen tremendous growth in the past few years.
Delhi constituted 14 per cent of the total FDI inflow in India in FY2024. Though there is a decline in the FDI inflow, Delhi continues to play a critical role in attracting investments to India.
Gujarat
In July, the government of Gujarat announced that FDI inflow in Gujarat in FY2024 rose by 55 per cent from FY2023. In FY2024, Gujarat was the state to attract the highest FDI inflow in India, surpassing Maharashtra, Delhi and Karnataka.
The overall FDI in India in FY2024 was declining, however, Gujarat was able to grow its FDI inflow by more than double.
According to the Economic Survey, Gujarat had 190 projects with an investment of Rs 62,535 crore between April to December, in FY2024.
Tamil Nadu
Like Gujarat, Tamil Nadu also grew its FDI inflow in FY2024 when the entire country’s FDI was declining. The FDI inflow from FY2023 to FY2024 increased by 12.44 per cent.
United States was one of the Country Partners for the Tamil Nadu Global Investors Meet 2024. Tamil Nadu hosts companies such as Ford and Dell, attracting major investments from the US in sectors like IT/ITeS, automobile, electronics and renewable energy.
In August, Chief Minister M.K. Stalin laid the foundation stone for 28 industrial projects worth Rs 51,157 crore and inaugurated 19 more projects worth Rs 17,616 crore, making a total of 47 projects.
Though the FDI inflow in India is currently declining due to geopolitical tensions, global recession and slow growth rates, these 5 Indian states were able to attract a significant amount of FDIs. States like Gujarat, Tamil Nadu and Maharashtra saw upward growth in FDI even when it was declining for the entire country.
