Foreign Direct Investment (FDI) means where an individual or a company from one nation invests in the form of controlling ownership in other nations. In India, the investment climate is improving considerably since the economic reforms in 1991. The environment for doing business in India has very much improved. Today, India is at the 63rd position in the World Bank’s Ease of Doing Business (EoDB) report. FDI inflows in India in the financial year 2019-20 record $49.98 Billion, which was 13% more than the previous financial year’s (2018-19) inflows ($44.36 Billion). FDI in India makes India an open economy which results in more job opportunities. It will also increase the competition in the market which results in better products with appealing pricing for the consumers. Foreign Direct Investment also helps to increase the foreign reserves of India which will strengthen the Rupees against foreign currencies. FDI will boost the Indian economy enormously. All sectors will be equally benefitted with the FDI infusion in the Indian economy. In 2015 India overtook China and USA as the best destination for the FDI. In the first half of the year 2015, India attracted investment of $31 Billion which is more than the investment in the USA ($27 Billion) and China ($28 Billion).
In April 2020 due to the recent COVID pandemic, India changed its FDI policy to protect Indian companies. The new FDI policy does not restrict the market and provide equal opportunities to the Indian companies. The new policy ensures that all FDI will now be under the scrutiny of The Ministry of Commerce and Industry.
Foreign companies invest in India to take advantage of low labor costs in India, special investment privileges like tax exemption, duty-free import, procurement of goods for development, etc. For a country like India FDI also brings new technologies that help Indian companies make their products competitive.
The Indian Government’s favorable policies and robust business environment have guaranteed that foreign capital keeps coming into the country. The government has taken many steps in recent years such as providing concession across sectors such as PSU oil refineries, defense, telecom, and stock exchange among others.
There are two ways through which India gets Foreign Direct Investment
In Automatic Route, the foreign investor or the Indian company does not need pre-approval from the Government of India or Reserve Bank of India (RBI). This route is allowed in all sectors and activities specified under the Consolidated FDI Policy. Another feature of this route is that foreign investor must inform the RBI only within thirty days of bringing their investment into the country, and within thirty days of issuing any shares. Most of the FDI in India is now allowed under this route.
The government’s approval is a must. The corporate will need to apply through the Foreign Investment Facilitation Portal, which has a facility of single-window clearance. The appliance is then forwarded to the Ministry of Commerce and Industry, which can approve/reject the appliance in consultation with the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce. DPIIT will issue the quality procedure (SOP) for the processing of applications under the prevailing FDI policy.
Sectors which come under the ‘ 100% Automatic Route’ category are
Agriculture, animal husbandry, Aviation Sector, Airports, Auto components, Automobiles, Biotech, E-Commerce activities, Electronics, IT sector, Railway infrastructure, Road and highways, Tourism and Hospitality, Healthcare, Renewable energy, Pharmaceuticals, Natural gas, chemicals, coal and Ignite, etc.
Sectors which come under ‘up to 100% Automatic Route’ category are
- Infrastructure Company in the Securities Market: 49%
- Insurance sector: up to 49%
- Devices used for medical purposes: up to 100%
- Pension: 49%
- Petroleum Refining (By PSUs): 49%
- Power Exchanges: 49%
Sectors which come under ‘up to 100% Automatic Route’ category are
- Banking Sector: 20%
- Public Sector: 20%
- Broadcasting Services: 49%
- Core Investment Companies: 100%
- Food Products Retail: 100%
- Mining & Minerals separations of titanium bearing minerals and ores: 100%
- Multi-Brand Retail: 51%
- Print Media(all types of Print Media): 26%
- Satellite (Establishment and operations): 100%
Foreign Direct Investment Prohibition
In India, there are some sectors in which FDI is still strictly prohibited. Following sectors are strictly prohibited under any route:
Atomic Energy generation, trading in TDR’s, Housing and Real Estate, Investment in Chit funds, Lottery (Online and Offline both), Gambling or betting of any kind, anything relates to tobacco industry like cigarettes, the cigar.
Some recent Foreign Direct Investment announcements in India:-
- In June 2020, Jio Platform Limited sold its 22.38% stakes worth $14.75 Billion to 10 global investors in a span of 2 months. Some major stakeholders are Facebook, Vista, Silver Lake, TPG Capital, L. Catterton, etc. This is the largest continuous fundraise by any company in the world.
- This year in January Amazon announced an investment of $1 Billion for digitalizing small and medium businesses of India. That will create 1 million jobs in India.
- In January 2020, MasterCard announced that it will invest $1 Billion in India over the next 5 years for increasing its R&D effort in the Indian market.
- In October 2019, one of the biggest Oil and Gas companies of France, Total S.A. acquired 37.4% in Adani Gas Limited for $810 Million. It is the largest FDI in India’s Gas Distribution Sector.
- In August 2019, Saudi Aramco dealt with Reliance Industries Limited to buy a 20% stake in Reliance Oil to Chemicals business. Its enterprise value is $75 billion. It is one of the biggest investments in the Indian market by a foreign company.
Government Initiatives for Foreign Direct Investment
- · This year in May, Government increased FDI in defense manufacturing (automatic route) from 49% to 74%.
- · In April 2020, Government has changed its existing FDI policy which will restrict the opportunistic acquisition or takeovers of Indian companies by companies of neighboring nations.
- · In March 2020, the Government granted permission for NRIs to acquire up to 100% stake in Air India.
- · In December 2019, the Government grants permission for 26% FDI in the digital sector.
- · In August 2019, the Government permitted 100% FDI in coal mining for open sale (automatic route); also it allowed the development of allied infrastructure.
- · In the budget of 2019-20
- · 100% FDI is permitted in the insurance Sector.
- · As of February 2019, The Govt. of India has been working on a roadmap to achieve a goal of $100 billion FDI inflow in India. It will boost the Indian economy enormously.
- · In February 2019, the Government of India released the Draft national E-Commerce policy that will encourage the FDI in the E-Commerce industry. It also stated that FDI policy for the E-Commerce sector is developed so that to ensure level playing field for Indian Competitors.
- · Government of India is planning 100% FDI in Insurance intermediaries to raise funds and it will also boost the insurance sector.
- · In December 2018, The Government of India revised E-Commerce FDI rules. According to the new rules, 100% FDI was allowed in the E-Commerce sector (marketplace based model). Also, the vendor’s sales through the E-commerce entity will be 1/4th of the total sale of the vendor.
According to the Emerging Market Private Equity Association (EMPEA), India will become the most luring emerging marketplace for Global Investment incoming 1 year. It will attract many big foreign companies to invest in India. This will give a boost to the Indian Economy as well as it will produce job opportunities for the youth of India.
Annual FDI inflow within the country is predicted to rise to US$ 75 billion over the subsequent five years as per the report by UBS.
The Government of India is aiming to achieve US$ 100 billion worth of FDI inflow in the next two years.
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