Foreign direct investment in India

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A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans". FDI is the sum of equity capital, long-term capital, and short-term capital as shown in the balance of payments. FDI usually involves participation in management, joint-venture, transfer of technology and expertise. Stock of FDI is the net (i.e., outward FDI minus inward FDI) cumulative FDI for any given period. Direct investment excludes investment through purchase of shares (if that purchase results in an investor controlling less than 10% of the shares of the company).

FDI in India[edit]

Foreign direct investment (FDI) in India is a major monetary source for economic development in India. Foreign companies invest directly in fast growing private auspicious businesses to take benefits of cheaper wages and changing business environment of India. Economic liberalisation started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India,[1][2] which subsequently generated more than one crore (10 million) jobs.

On 17 April 2020, India changed its foreign direct investment (FDI) policy to protect Indian companies from "opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic", according to the Department for Promotion of Industry and Internal Trade.[3][4][5][6] While the new FDI policy does not restrict markets, the policy ensures that all FDI will now be under scrutiny of the Ministry of Commerce and Industry.[7][8]

Types of Foreign Direct Investment[edit]

There are mainly two types of FDI- Horizontal and Vertical. However, two other types of FDI have emerged- Conglomerate and Platform FDI. 1. HORIZONTAL FDI: Under this type of FDI, a business expands its inland operation to another country. The business undertake the same activities but in foreign country. 2. VERTICAL FDI: In this case, a business expands into another country by moving to a different level of supply chain. Thus business undertakes different activities overseas but these activities are related to main business. 3. CONGLOMERATE FDI: Under this type of FDI, a business undertakes unrelated business activities in a foreign country. this type is uncommon as it involves the difficulty of penetrating a new country and an entirely new market. 4. PLATFORM FDI: Here, a business expands into another country but the output from the business is then exported to a third country.

Routes[edit]

There are two routes by which India gets FDI.[9]
1. Automatic route: By this route FDI is allowed without prior approval by Government or Reserve Bank of India.[9]
2. Government route: Prior approval by government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate single window clearance of FDI application under Approval Route. The application will be forwarded to the respective ministries which will act on the application as per the standard operating procedure.[10] Foreign Investment Promotion Board (FIPB) which was the responsible agency to oversee this route was abolished on May 24, 2017. It held its last meeting on 17 April, which was the 245th meeting of the Board.[9][11] On 24 May 2017, Foreign Investment Promotion Board was scrapped by the Union Government.Henceforth, the work relating to processing of applications for FDI and approval of the Government thereon under the extant FDI Policy and FEMA, shall now be handled by the concerned Ministries/Departments in consultation with the Department for Promotion of Industry and Internal Trade(DPIIT) , Ministry of Commerce, which will also issue the Standard Operating Procedure (SOP) for processing of applications and decision of the Government under the extant FDI policy[12]

FDI Recipients[edit]

The World Investment Report 2020 by the UN Conference on Trade and Development (UNCTAD) said that India was the 9th largest recipient of FDI in 2019, with $51 billion of inflow during the year, an increase from $42 billion of FDI received in 2018, when India ranked 12 among the top 20 host economies in the world. In the " Development Asia" region, India was among top 5 host economies for FDI. The report said that global FDI flows are forecast to decrease by up to 40% in 2020, from their 2019 value of USD 1.54 trillon. According to Financial Times, in 2015 India overtook China and United States as the top destination for the FDI. In first half of 2015 India attracted investment of $31 billion compared to $28 billion and $27 billion of China and US respectively. Data for 2019-2020 indicates that services sector attracted the highest FDI equity inflow of US$7.85 billion, followed by computer software and hardware at US$7.67 billion, telecommunications sector at US$4.44 billion, and trading at US$4.57 billion.

Government initiatives[edit]

The Government of India has amended FDI policy to increase FDI inflow. In 2014, the government increased foreign investment upper limit from 26% to 49% in insurance sector. It also launched Make in India initiative in September 2014 under which FDI policy for 25 sectors was liberalised further.[13][14] As of April 2015, FDI inflow in India increased by 48% since the launch of "Make in India" initiative.[15] In May 2020, government increased FDI in defence manufacturing under the automatic route from 49% to 74%. In April 2020, government amended existing consolidated FDI policy for restricting opportunistic takeovers or acquisition of Indian companies from neighbouring nations.In March 2020,government permitted Non Resident Indians (NRIs) to acquire up to 100% stake in Air India

India was ranking 15th in the world in 2013 in terms of FDI inflow, it rose up to 9th position in 2014[16]Template:Reliable source while in 2015 India became top destination for foreign direct investment.[17] The Department for Promotion of Industry and Internal Trade and Invest India has developed the India Investment Grid (IIG) which provides a pan-India database of projects from Indian promoters for promoting and facilitating foreign investments.

Coronavirus pandemic impact[edit]

On 18 April 2020, the government of India passed an order that would protect Indian companies from FDI during the pandemic. All countries sharing a land border with India would now face scrutiny from the Ministry of Commerce and Industry before any FDIs.[18] These changes were incorporated in the Consolidated FDI policy released on 28 October 2020.[19]

Sectors[edit]

During 2014–16, India received most of its FDI from Mauritius, Singapore, Netherlands, Japan and the US. [20] On 25 September 2014, Government of India launched Make in India initiative in which policy statement on 25 sectors were released with relaxed norms on each sector.[21] Following are some of major sectors for Foreign Direct Investment.

Infrastructure[edit]

10% of India's GDP is based on construction activity. Indian government has invested $1 trillion on infrastructure from 2012–2017. 40% of this $1 trillion had to be funded by private sector. 100% FDI under automatic route is permitted in construction sector for cities and townships.[22][23][non-primary source needed][24]

Automotive[edit]

FDI in automotive sector was increased by 89% between April 2014 to February 2015.[25] India is 7th largest producer of vehicles in the world with 25.5 million vehicles annually. 100% FDI is permitted in this sector via automatic route. Automobiles shares 7% of the India's GDP.[26]

Pharmaceuticals[edit]

Indian pharmaceutical market is 3rd largest in terms of volume and 13th largest in terms of value. Indian pharma industry is expected to grow at 20% compound annual growth rate from 2015 to 2020.[27] 74% FDI is permitted in this sector.[28][29][30]

Service[edit]

FDI in service sector was increased to 46% in 2014–15. It is US $1.88 billion in 2017. Service sector includes banking, insurance, outsourcing, research & development, courier and technology testing.[31] FDI limit in insurance sector was raised from 26% to 49% in 2014.[32] FDI limit in Insurance has been further increased to 74% in 2021.

Railways[edit]

100% FDI is allowed under automatic route in most of areas of railway, other than the operations, like High speed train, railway electrification, passenger terminal, mass rapid transport systems etc.[33][34] Mumbai-Ahemdabad high speed corridor project is single largest railway project in India, other being CSTM-Panvel suburban corridor. Foreign investment more than ₹90,000 crore (US$13 billion) is expected in these projects so far.[35]

Chemicals[edit]

Chemical industry in India earned revenue of $155–160 billion in 2013.[36] 100% FDI is allowed in Chemical sector under automatic route. Except Hydrocynic acid, Phosgene, Isocynates and their derivatives, production of all other chemicals is de-licensed in India.[37] India's share in global specialty chemical industry is expected to rise from 2.8% in 2013 to 6–7% in 2023.[38]

Textile[edit]

Textile is one major contributor to India's export. Nearly 11% of India's total export is textile. This sector has attracted about $1647 million from April 2000 to May 2015. 100% FDI is allowed under automatic route.[39] During year 2013–14, FDI in textile sector was increased by 91%.[40] Indian textile industry is expected reach up to $141 billion till 2021.[41]

Airlines[edit]

Foreigner investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100%.

References[edit]

  1. ↑ R. Nagaraji. "What Has Happened since 1991? : Assessment of India's Economic Reforms" (PDF). Igidr.ac.in. Retrieved 12 October 2015.
  2. ↑ "How the Indian economy changed in 1991–2011". The Economic Times. 24 July 2011. Retrieved 11 October 2015.
  3. ↑ "India to China on FDI Policy: Changes in FDI rules don't violate treaties". The Times of India. 22 April 2020. Retrieved 22 April 2020.
  4. ↑ "Govt tweaks FDI rules to shield domestic firms. Thank you, tweets Rahul Gandhi". Hindustan Times. 18 April 2020. Retrieved 22 April 2020.
  5. ↑ "China's protest of India's revised FDI Policy: A process of de-globalisation begins opine experts". The Financial Express. 22 April 2020. Retrieved 22 April 2020.
  6. ↑ https://dipp.gov.in/sites/default/files/pn3_2020.pdf
  7. ↑ Suneja, Kirtika (22 April 2020). "FDI policy does not restrict market access: Officials". The Economic Times. Retrieved 22 April 2020.
  8. ↑ Tripathi, Dhirendra (22 April 2020). "Scrutiny is key to allowing Chinese presence in India". Livemint. Retrieved 22 April 2020.
  9. ↑ 9.0 9.1 9.2 "Reserve Bank of India – Frequently Asked Questions". Reserve Bank of India. Retrieved 11 October 2015.
  10. ↑ http://fipb.gov.in/Forms/SOP.pdf
  11. ↑ "FIPB Abolished – What happens now?". Retrieved 25 May 2017.
  12. ↑ "Cabinet approves phasing out Foreign Investment Promotion Board". pib.nic.in. Retrieved 2 May 2018.
  13. ↑ "Eyeing big-billions in 2015, government rolls out FDI red carpet". The Economic Times. 28 December 2014. Retrieved 11 October 2015.
  14. ↑ "Govt initiatives help revive FDI inflow after 3-year slump, up 54% in FY15". The Indian Express. 31 August 2015. Retrieved 11 October 2015.
  15. ↑ "FDI up 48% since 'Make in India' campaign launch". The Economic Times. 14 July 2015. Retrieved 11 October 2015.
  16. ↑ ISTJun 25, 2015 (25 June 2015). "India Attracts Enough FDI to Join Global Top Ten – India Real Time – WSJ". The Wall Street Journal. Retrieved 11 October 2015.
  17. ↑ "India pips US, China as No. 1 foreign direct investment destination". The Times of India. 30 September 2015. Retrieved 11 October 2015.
  18. ↑ "View: Why govt's recent FDI move may not bode well for the Indian economy". The Economic Times. 19 April 2020. Retrieved 22 April 2020.
  19. ↑ "Govt releases consolidated FDI policy document; replaces countries of concern with land border - Economic Times".
  20. ↑ "Welcome to India in Business". Indiainbusiness.nic.in. Retrieved 17 October 2015.
  21. ↑ "'Make in India' pitch from Sept. 25". The Hindu. 21 September 2014. Retrieved 17 October 2015.
  22. ↑ "Government relaxes FDI norms for construction, real estate sector". The Indian Express. 29 October 2014. Retrieved 11 October 2015.
  23. ↑ "Construction". Make In India. Retrieved 11 October 2015.
  24. ↑ "7 major sectors attracting FDI for India | 7 major sectors attracting FDI for India". Yahoo Finance. 13 September 2012. Retrieved 11 October 2015.
  25. ↑ "FDI in automobile sector up 89% in April–February FY'15". The Economic Times. 25 May 2015. Retrieved 11 October 2015.
  26. ↑ Invest India (16 March 2012). "Automobile". Invest India. Retrieved 11 October 2015.
  27. ↑ "Indian Pharmaceutical Industry, Pharmaceutical Industry In India, Pharma". Ibef.org. 9 September 2015. Retrieved 17 October 2015.
  28. ↑ "Review of the policy on Foreign Direct Investment in Pharmaceutical Sector – carve out for medical devices". Pib.nic.in. 24 December 2014. Retrieved 11 October 2015.
  29. ↑ "Government keeps 100% FDI policy in pharma unchanged | Business Standard News". Business Standard. Retrieved 11 October 2015.
  30. ↑ Deepshikha Sikarwar (31 December 2014). "Finance Ministry pitches for easing of FDI norms in pharma sector". The Economic Times. Retrieved 11 October 2015.
  31. ↑ "FDI inflows in services sector increased by 46 per cent in 2014–15: Department of Industrial Policy and Promotion data". The Economic Times. 15 June 2015. Retrieved 11 October 2015.
  32. ↑ "Six insurance companies evince interest to raise FDI cap to 49%". The Times of India. Retrieved 11 October 2015.
  33. ↑ "Cabinet clears 100% FDI in Railways infrastructure, 49% in defence | Zee News". Zeenews.india.com. Retrieved 13 October 2015.
  34. ↑ "Railways". Make In India. Retrieved 13 October 2015.
  35. ↑ "Indian Railways opens up Rs 90,000 cr FDI opportunity". Rediff.com. 12 December 2014. Retrieved 13 October 2015.
  36. ↑ "Indian chemicals industry to record 11–12% growth rate: Frost & Sullivan | Business Standard News". Business Standard. Retrieved 17 October 2015.
  37. ↑ http://www.ficci.com/sector/7/Project_docs/Chemical-Petrochemical-sector.pdf
  38. ↑ "Specialty chemicals industry: Making India a global manufacturing powerhouse | Business Standard News". Business Standard. Retrieved 17 October 2015.
  39. ↑ "Textile Industry in India, Indian Textile Industry, Garment Industry". Ibef.org. Retrieved 17 October 2015.
  40. ↑ "FDI in textile sector up 91% in 2013–14 | Business Standard News". Business Standard. Retrieved 17 October 2015.
  41. ↑ "Archived copy" (PDF). Archived from the original (PDF) on 24 August 2015. Retrieved 17 October 2015.{{cite web}}: CS1 maint: archived copy as title (link)

External links[edit]

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