Foreign direct investment in India
Foreign Direct Investment (FDI) in India is the major monetary
source for economic development in India.
Apart from being a critical driver of economic growth, foreign
direct investment (FDI) is a major source of non-debt financial
resource for the economic development of India.
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Foreign companies invest in India to take advantage of
relatively lower wages, special investment privileges such as tax
exemptions, etc. For a country where foreign investments are
being made, it also means achieving technical know-how and
generating employment.
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The Indian government’s favorable policy regime and robust
business environment have ensured that foreign capital keeps
flowing into the country. The government has taken many
initiatives in recent years such as relaxing FDI norms across
sectors such as defense, PSU oil refineries, telecom, power
exchanges, and stock exchanges, among others.
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Why FDI exists ?
Foreign companies invest in India to take benefits of cheaper wages and
changing business environment of India.
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How do we get FDI ?
There are 2 ways to get FDI :
1. Automatic route: By this route FDI is allowed without prior
approval by Government or Reserve Bank of India.
2. Government route: Prior approval by government is needed
via this route. Foreign Investment Promotion Board is the
responsible agency to oversee this route.
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Holistic view on FDI :
Economic liberalization started in India in wake of the 1991
economic crisis and since then FDI has steadily increased in
India.
According to the Financial Times, in 2015 India overtook China
and the US as the top destination for the Foreign Direct
Investment. In first half of the 2015, India attracted investment
of $31 billion compared to $28 billion and $27 billion of China
and the US respectively.
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 liberalized further.
As of April 2015, FDI inflow in India increased by 48% since the
launch of “Make in India” initiative.
India was ranking 15th in the world in 2013 in terms of FDI
inflow, it rose up to 9th position in 2014, while in 2015 India
became top destination for foreign direct investment.
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Sector wise FDI :
During 2014–15, India received most of its
FDI from Mauritius, Singapore, Netherlands, Japan and the US.
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.
Following are some of major sectors for Foreign Direct Investment :
Infrastructure :
10% of India’s GDP is based on construction activity. Indian
government has plans to invest $1 trillion on infrastructure from
2012–2017.
40% of this $1 trillion is to be funded by private sector. 100% FDI under
automatic route is permitted in construction sector for cities and
townships.
Automotive :
FDI in automotive sector was increased by 89% between April 2014 to
February 2015.
India is 7th largest producer of vehicles in the world with 17.5 million
vehicles annually. 100% FDI is permitted in this sector via automatic
route. Automobiles shares 7% of the India’s GDP.
Pharmaceuticals :
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.
100% FDI is permitted in this sector.
Service :
FDI in service sector was increased by 46% in 2014–15. Service sector
includes banking, insurance, outsourcing, research & development,
courier and technology testing.
FDI limit in insurance sector was raised from 26% to 49% in 2014.
Railways :
100% FDI is allowed under automatic route in most of areas of railway
like High speed train, railway electrification, passenger terminal, mass
rapid transport systems etc.
Mumbai-Hyderabad high speed corridor project is single largest railway
project in India, other being CSTM-Panvel suburban corridor. Foreign
investment more than ₹90000 crore (US$13 billion) is expected in these
projects.
Chemicals :
Chemical industry of India earned revenue of $ 155–160 billion in 2013.
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.
India’s share in global specialty chemical industry is expected to rise
from 2.8% in 2013 to 6–7% in 2023.
Textile :
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. During year 2013–14, FDI
in textile sector was increased by 91%.
Indian textile industry is expected reach up to $ 141 billion till 2021.
