Foreign_Direct-Investment_in_India

FDI means a major investment by a foreign corporation with a controlling ownership in a business enterprise in one country by that entity based in a foreign country. FDI is encouraged by IMF (International Monetary Fund) as part of their restructuring programs of emerging economies like India. Four largest emerging markets are BRIC countries (Brazil, Russia, India and China). Many economists believe that foreign direct investment is good for an economy, as it provides jobs and increases domestic capital whereas, critics opine that profits from FDI usually leave the country and go to that foreign company which establishes itself in the country.

Foreign investment through FDI was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then finance minister Manmohan Singh. India imposes a cap on equity holding by foreign investors in various sectors. FDI in aviation and insurance sectors is limited to a maximum of 49% by FDI policies of Government of India (GOI). The FDI policies are formulated/amended by Department of Industrial Policy& Promotion (DIPP) under Ministry of Commerce & Industry, GOI.

The DIPP is responsible for formulation of the FDI policy and facilitation of FDI inflows into the country through FIPB Board (Foreign Investment Promotion Board). The department provides direct assistance in the resolution of problems faced by foreign investors in implementation of their projects through Foreign Investment Implementation Authority (FIIA), which interacts directly with the Ministry/State Government concerned. DIPP also disseminates information about the positive investment climate that exists in the Indian economy to promote investments. The Department encourages and facilitates foreign technology collaborations among Indian companies and bilateral Economic cooperation agreements in the region, through Foreign Technology Collaboration (FTC) agreement. FTC agreements are approved either through the automatic route under the delegated power exercised by the RBI or by the Government.

Apart from monitoring and facilitation of FDI policy, DIPP also formulates and implements Industrial Policy, Intellectual Property Rights, promotes Industrial development in backward areas, encourages foreign technology collaborations, monitors industrial growth and advises on industrial and technical matters to the GOI.

DIPP is responsible for Intellectual Property Rights relating to Patents, Designs, Trade Marks and Geographical Indication of Goods and oversees the initiative relating to their promotion and protection. It promotes awareness regarding protection of the Intellectual Property Rights inherent in industrial property in collaboration with the World Intellectual Property Organisation (WIPO) and also provides inputs on various issues relating to the Agreement on Trade Related Aspects of Intellectual Properties (TRIPS) related to World Trade Organisation (WTO) in these fields.

An Indian company may receive Foreign Direct Investment under the two routes:

i.                    Automatic Route - FDI without prior approval either of the Government or the Reserve Bank of India in all sectors specified in FDI Policy issued by the Government of India from time to time.

ii.                  Government Route - FDI through this route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance.

FDI is prohibited in many important sectors.  Some of which are the following sectors:

i) Atomic Energy, ii) Agriculture iii) Chit Funds iv) Tobacco products and v) Realty Sector.

Starting from a baseline of less than $1 billion in 1990, as per GOI, India now is the third most important FDI destination (after China and USA) for transnational corporations during 2013–2014. As per the GOI data, the sectors that attracted higher inflows were services, telecommunication, construction activities and computer software and hardware.

As of 30^th Sept 2015 Financial Times, which received press release from Ministry of Finance to Media, In the January-June period, India has surpassed US and China as the biggest Foreign Direct Investment (FDI) destination, garnering $31 billion investments compared with $28 billion attracted by China and $27 billion by the US. In the first half of 2014, India had received $12 billion worth FDIs, thus doubling the kitty already in first half of this year.

On 10^th Nov, 2015 as per Reuters/Indian Express, GOI eased FDI norms in 15 sectors including Defence, Civil Aviation by raising FIPB (Foreign Investment Promotion Board) approval limit from Rs 3,000 to Rs 5,000 crores.  Mining, Broadcasting, Banking and Construction were also the part of these 15 sectors. FDI in Defence and Aviation through automatic route was up to 49% whereas for portfolio investors and foreign venture capital firms GOI cleared earlier restriction of 24% and increased to 49% with this announcement.

Full fungibility is introduced into banking sector which helps private sector banks to gain foreign investment up to 74% but with a condition that there will be no change in control and management of these banks. Private sector lenders such as Axis Banks, Kotak Bank, Yes Bank and Mahindra Bank will be the biggest beneficiaries as HDFC and ICICI Banks already have high foreign shareholding.

As per 14^th Nov, 2015 Business Standard paper, new FDI rules in Construction companies’ paves way for Smart Cities, as Centre allotted Rs 500 crores per city under Smart City Scheme which give impetus to 100 smart cities project. At a press conference, Finance Minister Arun Jaitley on 11^th Nov, 2015 said, “FDI is an additionality of resources and it is required if the cycle of economic activity has to take off. In the last few months, growth is being driven by public expenditure, some private investment and increased FDI. While the decision to liberalise FDI norms is for 15 sectors, the investment points impacted by these decisions is 32.” He also said that outdated conditionalities in Construction Sector are done away with, by liberalising on Capital, area and lock-in period.

Another major booster for companies such as IKEA, a single-brand retail company with 100 per cent FDI of Rs 10,500 crores, has come in the form of dilution in sourcing norms. Earlier, there was no consolidated figure for foreign money investment in single brand retail. The United Progressive Alliance government in 2012 raised FDI limit from 51% to 100%. India Inc in this context felt that more online freedom would mean some more FDI to flow into retail sectors.

FDI limits have been hiked in teleports (up linking hubs), DTH (direct-to-home) and cable networks to 100 per cent with government approval required beyond 49 per cent. Further, news and current affairs TV channels and FM radio companies can now bring in up to 49 per cent FDI under the government route compared with 26 per cent earlier. For non-news and down-linking of TV channels, 100 per cent FDI has been permitted under the automatic route.

As per 14^th Nov, 2015 Business Standard, Fitch ratings said, that as India is easing out on FDI norms to support investment and growth leading to liberalisation in 15 sectors would thus give boosting to structural macroeconomic factors like GDP significantly. It said, “We forecast India’s real GDP growth to come in at 7.5% this year and accelerate to 8% in 2016 and 2017”. 

MS. MADHAVI ESWARA, RESEARCH SCHOLAR (PhD)