Foreign direct investment (FDI) and foreign institutional investment (FII)
Strong macroeconomic fundamentals and a liberal foreign investment regime have made India an attractive destination for foreign investment. This is evident from the fact that India has witnessed a significant rise in foreign investment inflows since 2003‑04. However, during 2008‑09 there was a slowdown in foreign investment primarily due to a net outflow of foreign institutional investment (FII). During 2009‑10, stronger recovery in India ahead of the global recovery, coupled with positive sentiments of global investors on India's prospects, induced a revival in capital inflows. This was driven mainly by foreign institutional investment, with net FII inflows of US$29.0 billion in 2009‑10, representing a major reversal from the outflow of US$15.0 billion recorded during the previous year.
Source: Department of Industrial Policy and Promotion (http://dipp.nic.in/fdi_statistics/india_FDI_March2011.pdf).
Foreign direct investment (FDI), a more stable source of finance, outpaced FII inflows during 2006‑07 to 2009‑10, and compensated for the FII outflow during the crisis. FDI was channelled mainly into the services, telecommunications, computer software and hardware, construction, housing and real estate sectors.10
Though still a developing country, India is also emerging as a source of investments, which increased from US$19.1 billion in 2008‑09 to US$19.7 billion in 2009‑10 and US$18 billion in 2010‑11 (April to December).11 Mauritius received the largest share of gross outward FDI during 2010‑11 (April‑December), followed by Singapore, the United States, the Netherlands and the United Kingdom. The manufacturing sector (US$4.7 billion) accounted for the largest share of outward FDI during 2009‑10 followed by the services sector (US$4.1 billion). However, the services sector has taken the lead in 2010.
The blossoming of Indian entrepreneurship combined with a calibrated relaxation of the foreign exchange regime has resulted in the current increase in outbound FDI from India. A number of Indian enterprises are now substantially increasing their overseas operations, which has also benefitted the host countries.