Foreign investors continue to pursue ‘less complicated’ service sector: Report

Foreign investors continue to pursue 'less complicated' service sector: Report

According to India Ratings, FDI inflows are still skewed towards the service sector. (File)


Today, a domestic rating agency said that despite the strong efforts of the Narendra Modi government to boost manufacturing through its ‘Make in India’ initiative, foreign investors continue to continue to bet on the service sector.

Ratings and Research of India also says that the majority of foreign direct investment (FDI) in manufacturing is not a green sector or new investment, but should be an aspirational aspect.

“…despite the government’s efforts to attract more investment in the manufacturing sector through the ‘Make in India’ campaign, FDI inflows are still tilted towards the service sector,” the ratings agency said. said.

“…this may be because the services business is less complex than the manufacturing business in India,” the agency, a subsidiary of Fitch Ratings, said.

It said service sector FDI rose to $153.01 billion in the services sector between April 2014 and March 2022 from $80.51 billion in the April 2014 period. 2000 to March 2014, while growth in the manufacturing sector was slower at $94.32 billion versus $77.11 billion.

The agency reminded that in 2014, India launched a flagship program called ‘Make in India’ to facilitate investment in sectors, but with a particular focus on building a world-class manufacturing sector followed by PLI plans across 14 manufacturing sectors.

The agency said that the service sector also accounted for the highest proportion of FDI in the period 2000-2014, and added that in the service sector, commerce, telecommunications, banking/insurance, IT/ outsourcing business and hospitality/tourism are the priority industries.

In manufacturing, FDI focuses on segments such as automobiles, chemicals, drugs and pharmaceuticals, metallurgy and food processing.

The agency said that computer software and hardware have performed well, of which FDI increased to $72.7 billion between April 2014 and March 2022, from just 12.8 billion USD between April 2000 and March 2014, the agency said, adding that the sector saw further traction following the implementation of PLI (manufacturing linkage incentive) with major global brands such as Apple, Samsung, Flextronics and Nokia announced major investments in India.

The agency said the country had a good track record among emerging market economies in attracting FDI, with the share increasing to 6.65% in 2020 and falling to 2.83% in 2020. 2021 due to the impact of Covid-19.

From a regional perspective, FDI is “highly concentrated around a few countries”, the agency noted, implying that foreign capital inflows may not be conducive to country-wide development.

The report said four states – Maharashtra (27.5%), Karnataka (23.9%), Gujarat (19.1%) and (Delhi 12.4%) – accounted for a total of 83% of FDI since October 2018. 2019 to March 2022.

“…there is no particular reason for the concentration of FDI around only a few states, Ind-Ra believes it is probably due to favorable conditions in these states,” the report said.

As a result, three FDI corridors have formed, including the NCR of Delhi in the north, Maharashtra-Gujarat in the west and Karnataka-Tamil Nadu-Andhra Pradesh-Telangana in the south.

(Except for the title, this story has not been edited by NDTV staff and is published from an aggregated feed.)

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