In the history of the Indian startup ecosystem, the initial trust on the startups came in from global investors. However, over the last few years, the Indian investors have been increasing their trust and investments in startups. At the same time, collaborations of Indian and foreign investors has been pushing a new-found-growth in the foreign domestic investments (FDI) in the country.
The Department for Promotion of Industry and Internal Trade (DPIIT), in its fact sheet for 2018-19 performance of FDI has shown that India received investments worth $44.36 Bn, a fall of 1% against $44.86 Bn in 2017-18. However, in rupee terms, the growth is 7%, with investments increasing from INR 288,889 Cr in 2017-18 to INR 309,867 Cr in 2018-19.
The fluctuation is because of the conversion rate applied on the basis of monthly average rate provided by FEDAI (Foreign Exchange Dealers Association of India).
Slower Foreign Investments
Further, it is interesting to note that through the year 2018-19, the FDI investment has fallen M-o-M. FDI started at $5.34 Bn in April 2018 and ended at $3.6 Bn in March 2019, a 32.5% fall over these 12 months. The biggest dip came in November 2018, with FDI reaching $1.73 Bn.
At the same time, last year (2017-18), the FDI improved 2.7% from April 2017 to March 2018. The highest FDI came in August 2017 at $8 Bn.
Since 2017, India has launched a series of reforms to liberalise its foreign investment norms in sectors such as infrastructure, construction, development, and single brand retail trading. A strong inflow of foreign investments helps improve the country’s balance of payments situation and strengthens the value of rupee against global currencies.
Currently, India is among the most open economies globally for foreign direct investment. It allows FDI of up to 100% of the equity shareholding in most sectors under the automatic route. These include pharmaceuticals, food products, etc.
In such a scenario, the DPIIT’s data shows that services sector attracted the highest FDI equity inflow of $6.5 Bn, followed by computer software and hardware at $4.9 Bn and telecommunication at $2.2 Bn.
It is to be noted that today several startups have created their parent entities in countries such as Singapore and Mauritius for easier tax norms. Also, several Indian funds have their base in these two countries.
In this light, the DPIIT data shows that Singapore and Mauritius are the top two countries enabling $16.22 Bn and $8.08 Bn worth FDI, respectively, for the year. The third major investor is Netherlands which invested $2.96 Bn in the country in 2018-19, followed by the US at $3.13 Bn and Japan at $2.96 Bn.
Inc42 in its Indian Tech Startup Funding Report 2018 said that Indian tech startups raised $11 Bn in funding across 743 deals with more than 637 Indian startups raising funding in 2018.