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Foreign Direct Investment (FDI) in India

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Foreign Direct Investment or FDI is not only a key driver of economic growth but is also one of the main sources of non-debt financial resource for economy’s development in India. Various global organizations come to invest in India to take benefit from comparatively lower wages and special investment advantages like tax exemptions, etc. When it comes to the Indian government, it has a very favorable policy regime and competitive business environment that attracts foreign capital to flow into the country. The government has been taking various initiatives lately like relaxing FDI norms in all the sectors such as defense, telecom, PSU oil refineries, stock exchanges, power exchanges, etc. 

Market size 

As per the data given by the Department of Industrial Policy and Promotion (DIPP), the total FDI investments that came in India in 2018 (April-June) were at US$ 12.75 billion, pointing towards the success of government’s effort to make it easier to do business and relax FDI norms. According to this data, the services sector got the highest FDI equity inflow which was around US$ 2.43 billion. Trading attracted US$ 1.63 billion, followed by telecommunications which stood at US$ 1.59 billion and then computer software and hardware which got US$ 1.41 billion. In June 2018, the total FDI equity inflows went up to US$ 2.89 billion. Indian received the maximum FDI equity inflows from Singapore, Mauritius, Japan, Netherlands, and United Kingdom (in the same order). 

Investments and further developments

India ranked as the top recipient of Greenfield FDI Inflows from the Commonwealth, according to a trade review that was released by The Commonwealth in 2018.

Some of the significant announcements about FDI off late are as follows:

  • Bharti Airtel received the approval of the Government of India in August 2018 for selling 20 per cent stake in its DTH arm to Warburg Pincus – an American private equity firm for $350 million.
  • Idea’s request for 100 per cent FDI for an approval in June 2018 by the Department of Telecommunication (DoT) and then it got merged with Vodafone, which made Vodafone Idea the largest telecom operator in the country.
  • In the month of May, Walmart bought a 77 per cent stake in Flipkart for US$ 16 billion.
  • In the month of February 2018, Ikea announced that it is going to invest about Rs 4,000 crore (US$ 612 million) in Maharashtra to establish multi-format stores and their experience centers.
  • 39 MoUs have been signed in November 2017 at an investment of Rs 4,000-5,000 crore (US$ 612-765 million) in India’s North-East region.
  • In the month of December in 2017, the Department of Industrial Policy and Promotion (DIPP) gave approval to FDI proposals of Supr Infotech Solutions in retail sector and Damro Furniture, while Department of Economic Affairs, Ministry of Finance gave its approval to two FDI proposals which valued at Rs. 532 crore (US$ 81.4 million).
  • The Department of Economic Affairs also signed three foreign direct investment (FDI) proposals worth Rs. 24.56 crore (US$ 3.80 million) in October of 2017.
  • Kathmandu based CG Group is planning to invest Rs. 1,000 crore (US$ 155.97 million) in India in its food and beverage business by 2020.
  • International Finance Corporation (IFC) is also planning to invest around US$ 6 billion by 2022 in various sustainable and renewable energy programs in India.

 

Government Initiatives

The Government of India is considering 100 per cent FDI especially in Insurance intermediaries in India to promote the sector and attract more funds. In early 2018, the Government of India permitted a foreign airline to make investments in Air India up to 49 per cent. However, the percentage of investment cannot go over 49 per cent, directly or indirectly.

Now, no government approval is needed for FDI going up to 100 per cent in the Real Estate Broking Services. In September last year, the government spurred the states to strengthen single window clearance system to enable fast-tracking approval processes, so that we could attract bigger Japanese investments in India.

The Ministry of Commerce and Industry has made the approval mechanism easier for foreign direct investment (FDI) proposals by abolishing the approval of Department of Revenue and making it compulsory to clear all proposals that need approval within 10 weeks after receiving the application.

The Government of India is also discussing with the stakeholders to ease foreign direct investment (FDI) even further in defense sector to 51 per cent from the existing 49 per cent, so as to boost the “Make in India” initiative and also generate employment. Then in January 2018, Government of India permitted 100 per cent FDI in single brand retail via automatic route.

What’s in store?

India is now the most lucrative and emerging market especially for global partners (GP) investment in the coming year, according to a market attractiveness survey done recently by Emerging Market Private Equity Association (EMPEA).

Annual FDI inflows in India are forecasted to go up to US$ 75 billion in the coming five years, as per a UBS report. According to the World Bank, private investments in India would grow by 8.8 per cent in FY 2018-19 which would overtake the private consumption growth of 7.4 per cent, and thus promote India’s gross domestic product (GDP) in 2018-19.