Foreign investment in India through portfolio investors continues to remain positive in the last few weeks though there has been a decline in overall FDI in the past financial year. Economic growth forecasts appear to be moderated based on prevailing circumstances, globally as well as internally. A new scheme for manufacturing IT equipment and hardware has been approved, which is expected to increase opportunities for foreign investment in India’s IT sector.
Foreign Institutional Investors – Foreign Institutional Investors (FIIs) infused Rs 22,585 crore in Indian equities via the stock exchanges in 14 sessions between April 26 and May 16. Including primary market figures, the overall investment was Rs 33,714 crore ($4.12 billion), shows data from CDSL (Central Depositories Services India Limited). This run is equivalent to another 14-day run last year that saw Rs 52,464 crore ($6.6 billion) coming in between July 28 and August 19, 2022. What makes this impressive is that this is the longest streak of FII inflows in two and a half years — the last being a 19-day streak from November 26 to December 23, 2020 that saw the influx of Rs 59,645 crore ($8.1 billion). FIIs were net buyers to the tune of Rs 149.33 crore, as per provisional data on the exchanges. This is evidenced by the fact that on a year-to-date basis, FIIs have been net sellers to the tune of Rs 28,476 crore via the exchange route. However, including primary market activity, there has been a net inflow of `17,315 crore ($2.11 billion)
United Nations Report – The World Economic Situation and Prospects as of mid-2023 updates the World Economic Situation and Prospects 2023 released on 25 January 2023. The report is prepared by the Global Economic Monitoring Branch in the Economic Analysis and Policy Division of the United Nations Department of Economic and Social Affairs. While economic prospects remain subdued, the slowdown in global growth in 2023 is likely to be less severe than previously expected. As per this report, global growth is now projected to slow from 3.1 per cent in 2022 to 2.3 per cent in 2023, an upward revision by 0.4 percentage points from the January forecast. The report mentions that India’s economy is expected to expand by 5.8 per cent in 2023 and 6.7 per cent in 2024 (calendar year basis), supported by resilient domestic demand. However, higher interest rates and weaker external demand will continue to weigh on investment and exports in 2023. Inflation in India is expected to decelerate to 5.5 per cent in 2023 as global commodity prices moderate and slower currency depreciation reduces imported inflation. the Reserve Bank of India kept the policy rate unchanged at 6.5 per cent in April 2023, after a cumulative increase of 250 basis points since May 2022.
Dipping FDI Inflows – Foreign direct investment (FDI) into India declined by 22 per cent to USD 46 billion in 2022-23, dragged by lower inflows in computer hardware and software, and automobile industry, according to the Department for Promotion of Industry and Internal Trade (DPIIT) data. The FDI inflows stood at USD 58.77 billion during 2021-22. Total FDI inflows, which include equity inflows, re-invested earnings and other capital, declined by 16 per cent to USD 70.97 billion in the last fiscal as against USD 84.83 billion in 2021-22. During April-March 2022-23, Singapore emerged as the top investor with USD 17.2 billion FDI. It was followed by Mauritius (USD 6.13 billion), the US (USD 6 billion), the UAE (USD 3.35 billion), the Netherlands (USD 2.5 billion), Japan (USD 1.8 billion), UK (USD 1.73 billion), Cyprus (USD 1.27 billion), Cayman island (USD 772 million), and Germany (USD 547 million), the data showed.
New Scheme for IT Hardware Production – The Union Cabinet approved the Production Linked Incentive Scheme 2.0 for IT Hardware with a budgetary outlay Rs. 17,000 crore. Electronics manufacturing in India has witnessed consistent growth with 17% CAGR in last 8 years. This year it crossed a major benchmark in production – 105 billion USD (about Rs 9 lakh crore). India has become the world’s second largest manufacturer of mobile phones. Exports of mobile phones crossed a major milestone of 11 billion USD this year (about Rs 90 thousand crore). The global electronics manufacturing ecosystem is coming to India, and India is emerging as a major electronics manufacturing country. Building on the success of Production Linked Incentive scheme (PLI) for mobile phones, the Union Cabinet today approved PLI Scheme 2.0 for IT hardware
- PLI Scheme 2.0 for IT hardware covers laptops, tablets, all-in-one PCs, servers and ultra small form factor devices
- The budgetary outlay of the scheme is Rs. 17,000 crore. The tenure of this scheme is 6 years Expected incremental production is Rs. 3.35 Lakh crore
- Expected incremental investment is Rs. 2,430 crore
- Expected incremental direct employment is 75,000
The significance of this is that India is emerging as a trusted supply chain partner for all global majors. Large IT hardware companies have shown keen interest in establishing manufacturing facilities in India. This is further supported by strong IT services industry having good demand within the country. Most majors would like to supply domestic markets within India from a facility situated in India as well as make India an export hub.
It is worth noting that under the previous PLI scheme, the expected investment was pegged at Rs 2,500 crore – under the renewed plan, that projection has been reduced (to Rs 2,430 crore) despite sweetening the incentive structure. The Manufacturers’ Association For Information Technology (MAIT), the industry body that represents companies like Apple, Dell, HP and Lenovo, had earlier called for increasing incentives offered under the scheme. In fact, the body had said that the scheme’s outlay had to be Rs 20,000 crore.
New Technology Law – The Centre will release a draft of the Digital India Bill in the first week of June, Minister of State for Electronics and IT Rajeev Chandrasekhar said. The legislation will regulate a wide gamut of digital services including social media platforms as the Centre looks to replace India’s decades old Internet law, the Information Technology Act, 2000. The Digital India Bill is a key pillar of an overarching framework of technology regulations the Centre is building which also includes the draft Digital Personal Data Protection Bill, 2022, Indian Telecommunication Bill, 2022, and a policy for non-personal data governance. During his presentation, the minister reiterated that the government was considering whether online platforms should continue enjoying safe harbour protections, which is currently afforded to them under the IT Act, 2000, or such protections should become conditional.