In the world of foreign direct investment (FDI), it has been a momentous year for India.
The country has just crossed $500 billion in FDI equity inflows in the period between April 2000 – September 2020. Between April-August 2020, India received its highest ever FDI for a quarter at a little more than $35 billion. Its national investment promotion agency, Invest India, has won the UNCTAD (United Nations Conference for Trade and Development) award for being the world’s best investment promotion agency.
All of this adds up to something special happening in the world of FDI.
There are a host of reasons, from better infrastructure to lower taxes (India rolled out a major corporate tax cut at the end of last year), that have fuelled a surge in FDI. But underneath all that, something more fundamental is stirring.
A large quantum of FDI this year has been driven by tech giants. The money coming in is seeing not only the technology at play but is investing in the opportunities being churned out in a once-in-a-lifetime deep digitization of a 1.3 billion strong economy and society.
The World Economic Forum has a concept called ‘digital FDI’ which explains why and how, when countries go through digitization or the application of digital technologies at the very grassroots, they unlock value at every level, and become attractive for FDI than ever.
In the initial years of the digitization of India, it was thought of as something happening in, as it were, one part of the economy. But it is increasingly true that there is perhaps no part of the economy that is untouched today by digital technology. According to estimates made by the Reserve Bank of India (RBI), digital transactions in India which amount to around 100 million a day and worth around Rs 5 trillion at the moment are likely to soar to 1.5 billion transactions a day worth around Rs 15 trillion. The apex bank estimates that between 2016 and 2020, the volume of digital transactions in India jumped five-fold.
The recovery of the Indian economy after the Covid-19 pandemic is being propelled in a large part by the rural economy mainly because of the swift transfer of government benefits and cash transfers to this segment during the lockdown periods. Even the UNCTAD award for Invest India is driven in part due to its digital innovation in building an online Business Immunity Platform to help investors during the pandemic and especially the lockdown periods.
It is easy to see that investors find this kind of deep digitization exciting – notice for instance, the money pouring into digital education and into India’s myriad digital education start-ups which have seen some of the sharpest growth levels within the industry in the world.
Similar excitement can be seen in digital health even as the country proceeds towards building a digital health stack for every citizen and one unified, digitally accessible holding place for the health records of every Indian.
Such digitization not only brings in great investment and unlocks deep value, but it also makes the life of citizens fundamentally easier. From personal experience, my father, who is retired, is delighted that the banking checks and confirmations needed for him to receive his government pension no longer need his physical presence at a bank branch (critical during Covid-19) and can be conducted using digital technology.
From enabling the discovery of small merchants and artisans, thus strengthening their revenues and livelihood, to protecting endangered communities, digitization is changing India ground up. So, whether it is promoting rare honey made by beekeepers in the Sundarbans or Invest India using digital technology to track and deliver rare medicine to a patient during the lockdown, the benefits of deep digitization are myriad. Not least, ever-rising rates of FDI.
Hindol Sengupta is Vice President & Head of Research at Invest India, GoI’s national investment promotion agency. He can be reached at firstname.lastname@example.org