Foreign direct investment in India

From Wikipedia, the free encyclopedia

Foreign direct investment (FDI) in India is the major monetary source for economic development in India. Foreign companies invest directly in fast growing private Indian businesses to take benefits of cheaper wages and changing business environment of India. Economic liberalisation started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India.[1][2] It were Manmohan Singh and P. V. Narasimha Rao who brought FDI in India, which subsequently generated more than one crore jobs. 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.[3][4][5][6]

Routes

There are two routes by which India gets FDI.[7]

  • Automatic route: By this route FDI is allowed without prior approval by Government or Reserve Bank of India.[7]
  • Government route: Prior approval by government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate single window clearance of FDI application under Approval Route. The application will be forwarded to the respective ministries which will act on the application as per the standard operating procedure.[8] Foreign Investment Promotion Board (FIPB) which was the responsible agency to oversee this route was abolished on May 24, 2017. It held its last meeting on 17th April, which was the 245th meeting of the Board[7][9]

Government initiatives

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 liberalised further.[10][11] As of April 2015, FDI inflow in India increased by 48% since the launch of "Make in India" initiative.[12]

India was ranking 15th in the world in 2013 in terms of FDI inflow, it rose up to 9th position in 2014[13][unreliable source?] while in 2015 India became top destination for foreign direct investment.[3]

Sectors

During 2014–15, India received most of its FDI from Mauritius, Singapore, Netherlands, Japan and the US. [14] 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.[15] 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.[16][17][non-primary source needed][18]

Automotive

FDI in automotive sector was increased by 89% between April 2014 to February 2015.[19] 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.[20]

Manufacturing

India is making progress turning itself into a magnet for manufacturers, the aim being to increase the share of manufacturing in India’s GDP from a stagnant 15-16% since 1980 to 25% by 2022 and create an additional 100 million jobs. Electronics contributes to India's success in manufacturing but some challenges remain with foreign direct investment.

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.[21] 100% FDI is permitted in this sector.[22][23][24]

Service

FDI in service sector was increased by 46% in 2014–15. Service sector includes banking, insurance, outsourcing, research & development, courier and technology testing.[25] FDI limit in insurance sector was raised from 26% to 49% in 2014.[26]

Railways

100% FDI is allowed under automatic route in most of areas of railway, other than the operations, like High speed train, railway electrification, passenger terminal, mass rapid transport systems etc.[27][28] Mumbai-Ahemdabad high speed corridor project is single largest railway project in India, other being CSTM-Panvel suburban corridor. Foreign investment more than 90,000 crore (US$14 billion) is expected in these projects.[29]

Chemicals

Chemical industry of India earned revenue of $155–160 billion in 2013.[30] 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.[31] India's share in global specialty chemical industry is expected to rise from 2.8% in 2013 to 6–7% in 2023.[32]

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.[33] During year 2013–14, FDI in textile sector was increased by 91%.[34] Indian textile industry is expected reach up to $141 billion till 2021.[35]

Airlines

Foreigner investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100,with FDI up to 49% permitted under automatic route and beyond 49% through government approval.For airport modernization, 100% FDI will be allowed for existing airport under automatic route.

References

  1. ^ R. Nagaraji. "What Has Happened since 1991? : Assessment of India's Economic Reforms" (PDF). Igidr.ac.in. Retrieved 2015-10-12. 
  2. ^ "How the Indian economy changed in 1991–2011". The Economic Times. 24 July 2011. Retrieved 11 October 2015. 
  3. ^ a b "India pips US, China as No. 1 foreign direct investment destination". The Times of India. 30 September 2015. Retrieved 11 October 2015. 
  4. ^ "India grabs investment league pole position". Financial Times. 
  5. ^ "India Pips China, US to Emerge as Favourite Foreign Investment Destination: Report". NDTV Profit. Retrieved 1 October 2015. 
  6. ^ Rishi Iyengar (30 September 2015). "India Tops Foreign Investment Ranking Ahead of U.S and China". Time. Retrieved 11 October 2015. 
  7. ^ a b c "Reserve Bank of India – Frequently Asked Questions". Reserve Bank of India. Retrieved 11 October 2015. 
  8. ^ http://fipb.gov.in/Forms/SOP.pdf
  9. ^ "FIPB Abolished – What happens now?". Retrieved 25 May 2017. 
  10. ^ "Eyeing big-billions in 2015, government rolls out FDI red carpet". The Economic Times. 28 December 2014. Retrieved 11 October 2015. 
  11. ^ "Govt initiatives help revive FDI inflow after 3-year slump, up 54% in FY15". The Indian Express. 31 August 2015. Retrieved 11 October 2015. 
  12. ^ "FDI up 48% since 'Make in India' campaign launch". The Economic Times. 14 July 2015. Retrieved 2015-10-11. 
  13. ^ ISTJun 25, 2015 (2015-06-25). "India Attracts Enough FDI to Join Global Top Ten – India Real Time – WSJ". The Wall Street Journal. Retrieved 2015-10-11. 
  14. ^ "Welcome to India in Business". Indiainbusiness.nic.in. Retrieved 2015-10-17. 
  15. ^ "‘Make in India’ pitch from Sept. 25". The Hindu. 2014-09-21. Retrieved 2015-10-17. 
  16. ^ "Government relaxes FDI norms for construction, real estate sector". The Indian Express. 29 October 2014. Retrieved 11 October 2015. 
  17. ^ "Construction". Make In India. Retrieved 11 October 2015. 
  18. ^ "7 major sectors attracting FDI for India | 7 major sectors attracting FDI for India". Yahoo Finance. 13 September 2012. Retrieved 11 October 2015. 
  19. ^ "FDI in automobile sector up 89% in April–February FY'15". The Economic Times. 25 May 2015. Retrieved 11 October 2015. 
  20. ^ Invest India (16 March 2012). "Automobile". Invest India. Retrieved 11 October 2015. 
  21. ^ "Indian Pharmaceutical Industry, Pharmaceutical Industry In India, Pharma". Ibef.org. 2015-09-09. Retrieved 2015-10-17. 
  22. ^ "Review of the policy on Foreign Direct Investment in Pharmaceutical Sector – carve out for medical devices". Pib.nic.in. 24 December 2014. Retrieved 11 October 2015. 
  23. ^ "Government keeps 100% FDI policy in pharma unchanged | Business Standard News". Business Standard. Retrieved 11 October 2015. 
  24. ^ Deepshikha Sikarwar (31 December 2014). "Finance Ministry pitches for easing of FDI norms in pharma sector". The Economic Times. Retrieved 2015-10-11. 
  25. ^ "FDI inflows in services sector increased by 46 per cent in 2014–15: Department of Industrial Policy and Promotion data". The Economic Times. 15 June 2015. Retrieved 11 October 2015. 
  26. ^ "Six insurance companies evince interest to raise FDI cap to 49%". The Times of India. Retrieved 2015-10-11. 
  27. ^ "Cabinet clears 100% FDI in Railways infrastructure, 49% in defence | Zee News". Zeenews.india.com. Retrieved 2015-10-13. 
  28. ^ "Railways". Make In India. Retrieved 2015-10-13. 
  29. ^ "Indian Railways opens up Rs 90,000 cr FDI opportunity". Rediff.com. 2014-12-12. Retrieved 2015-10-13. 
  30. ^ "Indian chemicals industry to record 11–12% growth rate: Frost & Sullivan | Business Standard News". Business Standard. Retrieved 2015-10-17. 
  31. ^ http://www.ficci.com/sector/7/Project_docs/Chemical-Petrochemical-sector.pdf
  32. ^ "Specialty chemicals industry: Making India a global manufacturing powerhouse | Business Standard News". Business Standard. Retrieved 2015-10-17. 
  33. ^ "Textile Industry in India, Indian Textile Industry, Garment Industry". Ibef.org. Retrieved 2015-10-17. 
  34. ^ "FDI in textile sector up 91% in 2013–14 | Business Standard News". Business Standard. Retrieved 2015-10-17. 
  35. ^ http://www.cci.in/pdfs/surveys-reports/Textile-Industry-in-India.pdf

External links

  • Foreign Investment Facilitation Portal
  • Department of Industrial Policy & Promotion
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