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 30th 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
10th 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 14th 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 11th
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 14th
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)
