FOREIGN DIRECT INVESTMENT IN INDIA (FDI)
- The import-substitution strategy of industrialisation followed by India post independence stressed on an extremely careful and selective approach while formulating FDI policy. Extensive controls imposed by the government severely restricted the inflow of foreign capital to India.
- The enactment of the Foreign Exchange Regulation Act (FERA), 1973 consolidated the regulatory framework with stipulations of upto 40 per cent of foreign equity holding in a joint venture. The Industrial Policy announcements of 1980 and 1982 and the Technology Policy Statement (1983) provided for a moderately lenient attitude towards foreign investments by endorsement of manufacturing exports as well as modernisation of industries through liberalised imports of capital goods and technology.
- This was supplemented by trade liberalisation measures in the form of tariff reduction and shifting of large number of items from import licensing to Open General Licensing (OGL).
- The most important shift in investment policy occurred when India embarked upon economic liberalisation and reforms programme in 1991 to raise its growth potential and to integrate it with the world economy. Further reforms in subsequent years put in place a series of measures directed towards liberalizing foreign investments and for ensuring access to foreign technology and funding.
- The government’s strategy favouring foreign investments and the prevalent robust business environment have ensured that foreign capital keeps flowing into the country. The government initiatives such as automatic approval of FDI, simplification of procedures, setting up of Foreign Investment Promotion Board (FIPB abolished wef May 2017), signing of the Multilateral Investment Guarantee Agency Protocol for protection of foreign investments, permitting use of foreign trade marks and brand names, 100% FDI in multitude of sectors , enactment of Foreign Exchange Management Act (FEMA), passing of the SEZ Act in 2005, Special Economic Zones (SEZ), support to mergers ,acquisitions and green field investments, and encouragement to foreign technology collaboration agreements are a few such measures.
- 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. According to United Nations Conference on Trade and Development (UNCTAD)’s World Investment Report 2016, India ranks as the tenth highest recipient of foreign direct investment globally in 2015 receiving $44 billion of investment that year compared to $35 billion in 2014. India has also moved up by one rank to become the sixth most preferred investment destination.
- According to the Department of Industrial Policy and Promotion (DIPP), the total FDI investments India received during April - September 2016 rose 30 per cent year-on-year to US$ 21.6 billion.
- During the period, the services sector attracted the highest FDI equity inflow (US$ 5.29 billion), followed by telecommunications (US$ 2.79 billion), and trading (US$ 1.48 billion). Also, India received the maximum FDI equity inflows from Mauritius (US$ 5.85 billion) followed by Singapore, Netherlands, Japan and the USA.
- With the government taking steps to improve the ease of doing business and to relax regulations, foreign direct investment into the country surged by 60 per cent to $4.68 billion in November 2016 from $2.93 billion in November 2015.
- Currently, an Indian company may receive foreign direct investment either through ‘automatic route’ without any prior approval either of the Government or the Reserve Bank of India or through ‘government route’ with prior approval of the Government.
- An Indian Company can receive foreign investment by issue of ‘FDI compliant instruments’ namely: equity shares, fully and mandatorily convertible preference shares and debentures, partly paid equity shares and warrants. These have to be issued in accordance with the provisions of the Companies Act, 2013 and the SEBI guidelines, as applicable.
(i) Lottery business including Government / private lottery, online lotteries, etc.
(ii) Gambling and betting including casinos etc.
(iii) Chit funds
(iv) Nidhi company
(v) Trading in Transferable Development Rights (TDRs)
(vi) Real Estate Business or Construction of Farm Houses
(vii) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
(viii)Activities / sectors not open to private sector investment e.g. atomic energy and railway operations (other than permitted activities).
Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for lottery business and gambling and betting activities.
With the objective of making India the most open economy in the world for FDI and for providing major impetus to employment and job creation, the FDI regime was radically liberalized on 20-June-2016. Changes introduced in the FDI policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditions for foreign investment. These include easing of FDI in defence sector, e-commerce, in respect of food products manufactured or produced in India, pharmaceuticals (Greenfield and Brownfield), airports (both Greenfield and Brownfield),airport transport services, private security agencies, animal husbandry, establishment of branch offices, liaison office or project office, teleports, direct to home cable networks, mobile TV and headend-in-the sky broadcasting service and single brand retail trading.
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