Foreign Direct Investment (FDI) in India: A Gateway for US Investors

Created By : Vikas Sharma

Overview of Foreign Direct Investment (FDI) in India

FDI is a substantial non-debt financial investment made by foreign company or government in domestic firms or joint ventures typically by taking controlling position. FDI is not only confined to investment in equity of a foreign company but also involves acquiring source of materials, expanding a company’s footprint, or developing a multinational presence. FDI in India can be made through automatic route or government route. In automatic route, no prior approval is required for making FDI, meanwhile, in government route, prior approval from competent authority is required to be obtained. 

With net FDI inflows reaching USD 1.03 trillion from April 2000 to June 2024, the country presents a dynamic investment landscape. But what makes India such a compelling option for foreign investors? Let’s explore

Current Landscape of FDI in India

1. Current trends and statistics:

US is the third most investing country in India through FDI Equity investing USD 4,998 million in FY 2023-24. India also had major FDI inflows during April 2000-September 2024 wherein US contributed almost 10% (USD 66.77 billion) of the total FDI equity inflow. The 2025 Census of India highlighted that the market value of FDI in India increased by 6.9% in rupee terms during FY 2022-23, primarily due to the rise in FDI in unlisted companies.

2. Key sectors attracting foreign investments:

Foreign investors are betting big on India, with computer software & hardware leading the way, attracting USD 7.03 billion. Technology and digital services are top choices especially in AI, fintech, and cloud computing. Renewable energy is also gaining prominence as countries shift to solar, wind, and other sustainable power sources. Healthcare and pharmaceuticals continue to attract investors due to rising global health needs and advancements in medical tech. Infrastructure is also an attractive sector as there is need for better transportation, urban development, and smart cities. 

Why India is becoming an attractive destination for US investors?

India has become an attractive destination for FDI in recent years, influenced by several factors. The Indian Startup Ecosystem ranked third globally in terms of unicorn count, collectively valued at USD 349.67 Billion as on May 2024. The rise of fintech, AI, and deep-tech ventures makes India an exciting market for investors. The Digital India initiative is further enhancing infrastructure and internet access, and the digital economy is on track to hit USD 1 trillion by 2025, making the country an attractive option for US investors. Several government Initiatives and ease of doing business in the country further enhances its appeal as an investment hotspot for foreign companies.

India’s FDI Policies & Reforms 2025:

Liberalisation of the FDI policy stands out as one of the most important government initiatives that have had a profound impact on foreign investment and have improved the ease of doing business as FDI limits were raised in critical sectors like:

1. Defence and Insurance: The ceiling for FDI in defence was revised from 49% to 74% under automatic route. It is to be noted that the budget 2025 proposed increasing the FDI limit in the insurance sector from 74% to 100% for companies that invest the entire premium in India. This move is expected to attract more foreign players into the underpenetrated insurance sector providing long-term growth capital, enhancing competitiveness, and generating employment opportunities.

2. Telecom: FDI limit in telecom was raised to 100% from 49% under the automatic route.

3. Healthcare: The healthcare sector has also noticed increased FDI inflows, especially in telemedicine, pharmaceuticals, and medical devices, driven by the need for better post-pandemic healthcare infrastructure.

4. Green energy initiatives: The government has made notable efforts to draw FDI into the renewables sectors such as particularly, solar, wind and hydrogen energy. Measures include promoting green hydrogen production, lowering custom duties on renewable energy equipment imports and facilitating public private partnership in renewable energy activities. 

Opportunities for US Investors

Key industries with high growth potential:

It is relevant to mention that India has lucrative FDI opportunities for American investors in the fast-growing areas of Information Technology, Renewable Energy, Healthcare, and Pharmaceuticals. Furthermore, the rapid growth of the electric vehicle market, as well as, Fintech, Agri-tech, Real Estate, Media, Entertainment, and even Biotechnology provides immense potential for investment.

Challenges & Risks

1. Regulatory hurdles and market entry challenges

Ø  Sector Specific Restrictions: Despite the Indian government's efforts to simplify global investments, certain sectors such as lottery businesses, chit funds, Nidhi company, activities/sectors closed to private investment like atomic energy and railway operations are not open for Non-Resident Indian (NRI) investment. Certain industries have limits on FDI for beyond a specified limit and they need to be approved by the Government. 

Ø  Complex Regulatory Environment: There are multiple regulatory challenges which can discourage investment in India such as overlapping regulations, excessive documentation, and bureaucratic inefficiencies.

2. Taxation Complexity

India’s tax structure, compliance procedures, and transfer pricing regulations can be complex for foreign investors.

The taxation compliances and tax enquiries may cause legal disputes and increased operational costs for foreign investors.

How can US businesses mitigate risks?

Investors may face various risk while making FDI in India such as political instability, regulatory challenges, and currency fluctuations. To mitigate these risks, US investors can:

• Conduct thorough due diligence before investing.

• Seek local strategic partnerships.

• Utilize hedging strategies to reduce currency risks.

• Explore government incentives for foreign businesses.

Future Outlook: Where is India Headed?

India offers attractive FDI opportunities for US investors across several high-growth sectors. The IT and software industry is rapidly expanding with demand for cloud computing and AI. Renewable energy is a key focus, with a target of 500 GW by 2030, and plans to expand capacity to 99.9 GW by 2029-30 in major wind energy-producing states. Healthcare and pharmaceuticals are set to grow to USD 372 billion by 2025.

The EV market is expected to grow over 40% by 2026. Fintech is also booming and is projected to reach USD 150 billion by 2025. Agri-tech innovations, real estate, media and entertainment are also fast-growing, with biotechnology set to hit USD 150 billion by 2025.

Conclusion

Why now is the right time for US investors to consider India?

Now is a great time for US investors to consider India as the economy is growing rapidly, with a booming tech-savvy population. Demand in sectors like IT, e-commerce, and fintech is expanding. Regulations of government like “Make in India” and 100% FDI allowances in many sectors are making investment in India easier.

How AKM Global can be your trusted partner in FDI investments?

Our team of experienced professionals enables the businesses to unravel the complexities of FDI effectively which helps in substantial growth and improvement. Our management ensures that the investments are in compliance with international and local regulations. Our services include:

• Identifying and creating best customised strategies for investment that aligns with the clients’ business goals.
• Identifying potential risks arising in FDI projects and offers strategies to mitigate such risks.
• Assisting the client in getting better understanding of the regulatory environment, local market conditions and competition to ensure smooth market entry.
• Guiding the clients through the legal and regulatory framework of FDI (including obtaining necessary permits, licenses, and approvals).
• Helping the clients to optimize their investment structure by providing guidance on financing options, tax efficiency, and risk management.
• Providing support after the investment is made, including operational guidance, compliance updates, and performance monitoring.

India is on the rise, and US investors stand to gain immensely from its diverse market, digital transformation, and policy-driven investment climate. Whether you’re eyeing IT, renewable energy, fintech, or healthcare, India is ready for business—are you?

Get in touch with AKM Global today to explore your FDI opportunities!