Services attract highest foreign direct investment, despite Make in India push

Out of the total FDI inflows of $31 bn received during April-March 2014-15, the services sector accounted for almost 17% of the cumulative inflows

Despite the government's efforts to increase investments in the manufacturing sector to boost its growth, services sector still continues to attract most foreign direct investment (FDI).

Out of the total FDI inflows of $31 billion received during April-March 2014-15, the services sector accounted for almost 17 per cent of the cumulative inflows.

During April-March 2014-2015, the services sector received foreign capital to the tune $3.25 billion compared to $2.22 billion in the corresponding period of 2013-2014, according to data by the Department of Industrial Policy and Promotion (DIPP) under ministry of commerce and industry.

The services sector consists of financial, banking, insurance, non-financial/business, outsourcing, R&D, courier, technology testing and analysis.

The services sector was followed by construction development, telecommunications, computer software and hardware and drugs and pharmaceuticals. The ranking is done in terms of the share of these sectors in the country's total FDI.

Sectors such as telecommunications, automobile industry and computer software and hardware received FDI worth of $2.89 billion, $2.57 billion and $2.20 billion respectively.

According to experts, the manufacturing sector will see a turnaround in terms of FDI inflows only during the last couple of quarters of the present financial year.

"The Make in India programme brought out a positive change in the sentiment that India is open for business, but not in terms of change in numbers. Some key reforms are needed to go through for the manufacturing sector to be the topmost in terms of the land bill getting passed and the coming of goods and services tax (GST). Steps have been taken in the positive direction," said Prashant Mehra, partner, Grant Thornton India LLP.

The Make in India was launched in September last year. Since then the government has taken a number of measures to increase FDI inflows in the manufacturing sector.

The permissible FDI limit in the defence sector was increased to 49 per cent, FDI up to 100 per cent was permitted in rail infrastructure, norms pertaining to FDI in construction development were liberalised and FDI in medical devices were exempt from sectoral restrictions of pharmaceuticals.

According to the DIPP, considering that Make in India was launched towards the end of the fiscal, the total FDI equity inflows received in the manufacturing sector during October 2014 till February 2015 was showed an increase of 44.98 per cent compared to corresponding period of previous financial year.

Economists also believe that for the manufacturing sector to exceed services, several big-ticket reforms need to go through.

"Make in India impact will be seen only by the fourth quarter of this fiscal. Any investment decision in to the manufacturing sector to fructify takes around 12-16 months. Investors are keen and exploring various sectors and we will see the money coming in from international investors only by the year-end or the beginning of next fiscal," highlighted Akash Gupt, executive director, PwC.