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India emerges as an attractive durable investment destination


India has emerged as an attractive durable investment destination amidst the COVID pandemic with record $25 billion net FDI inflows during the September quarter as investors bet on hopes that the economy would fire on two fronts – government spending and revival in private capital expenditure as the PLI scheme gathers steam.

The government’s production linked investment scheme is expected to revive capital expenditure and also attract more investment in the manufacturing sector including foreign investors. The government in November broadened the scope of the scheme tp include ten more sectors telecom, textiles, steel and pharmaceuticals among others, announcing incentives amounting to Rs 1.45 lakh crore. The scheme was initially launched for three sectors-mobile, pharma intermediaries and medical devices.

Under the scheme the government will give 4-6 per cent incentives to eligible companies on incremental sales with FY’20 as the base. The electronic and IT minister Ravi Shankar Prasad had said in a tweet earlier this month hat Production-linked incentive scheme (PLI) was launched in April 2020 and now several big companies have joined this scheme which are committed to manufacture phones worth Rs. 10.50 lakh crore in coming 5 years and will create 9 lakh direct & indirect jobs. The international mobile phone manufacturing companies that have applied under Mobile Phone (Invoice Value INR 15,000 and above) Segment are Samsung, Foxcon Hon Hai, Rising Star, Wistron and Pegatron, according to a release by the ministry.

Adding to strong capital inflows during the July-September quarter, foreign investment including direct investment and portfolio flows were the only major heads to witness net inflows during the quarter, latest balance of payments data indicates. With repayments exceeding disbursals during the quarter, external commercial borrowings worth $ 4.2 billion reversed. There was also a reversal of banking capital worth $ 11 billion during the quarter.

In addition to net inflows of $25 billion through direct equity investments, portfolio flows worth $ 7 billion also flowed into Indian markets. ” India continued to attract foreign direct investment, reversing the COVID-19 related volatility in global financial markets.” said Rahul Bajoria, chief India economist at Barclay’s Capital. “Net FDI jumped to $24.6bn, on the back of large inflows in Reliance Jio’s FDI raising”. Besides, a number of global private equity investors also increased their investments in Indian equities. Big global investors are also expected to participate in Reliance Industries’ retail am acquisition of Future group’s retail businesses.

The government has also been liberalising the FDI rules. Most recent this year being higher FDI limit for investment in defense industries from 49 per cent to 74 per cent.

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