INTRODUCTIONForeign direct investment is one of themeasures of growing economic globalization. There has been always issue withinvestment for the developing nations such as India. The world has beenglobalizing and all the countries are liberalizing their policies and welcominginvestment from countries which are large enough in capital resources. Thedeveloped economies are focusing on new markets where there is existence ofabundant labors, scope for products, and high profits are achieved.
Hence,Foreign Direct Investment (FDI) has become a battle ground in the emergingmarkets. The main idea behind allowing FDI is to supplement and complement domesticinvestment is to achieve a higher level of economic development and providingopportunities for technological upgradation also access to global managerialskills and practices.South Asian countries such as China haveincorporated open door policies during 1980’s but India liberalized itspolicies in 1991.India followed conservative policies before pre-liberalizationto protect the indigenous industrialist and investors, therefore could notachieve economic growth. In 1991, the then congress government had implementedliberalization policies to restructure the Indian economy.NEED FOR FDI IN INDIA Capital has been one of the scare resources asIndia is a developing nation that are usually required for economicdevelopment.
As the capital is limited, there are many issues such as health,poverty, employment, education, research and development, technology obsolesce,global competition. The flow of FDI in India from across the world will help inacquiring the funds at cheaper cost, better technology, employment generation,and upgraded technology transfer, scope for more trade, linkages and spilloversto domestic firms. The following arguments are advanced in favor of foreigncapital Ø Sustaining A GreaterLevel Of Investment: All the under-developed and the developing countries want to industrializeand develop, hence it becomes necessary to increase the level to investmentsubstantially. Because of poverty and low GDP the saving are low.
Therefore,there is a need to fill the gap between savings and income through foreigndirect investments. Ø Technological Gap: In Indian scenariowe need technical assistance from foreign source for provision if expertservices, training of Indian personnel and educational, research and traininginstitutions in the industry. It only comes through private foreign investmentor foreign collaborations. Ø Exploitation Of Natural Resources: We have abundantnatural resources such as coal, iron and steel but we require foreigncollaboration to extract the resources. Ø Understanding The Initial Risk: Ascapital is a scare resource in developing countries, there is high level ofrisk in investing in new ventures or projects for industrialization Hence, foreigncapital helps in these investments which require high risk. Ø Development Of Basic EconomicInfrastructure: The foreign financial institutions and government ofadvanced countries have made enough capital available to the under developedcountries.
FDI will help in developing the infrastructure by establishingfirm’s different parts of the country. Thereare special economic zones which have been developed by government forimprovising the industrial growth. Ø Improvement In The Balance Of PaymentsPosition: The inflow FDI will help in improving the balance of payment.
Firms which feel that the goods produced in India will have a low cost, willproduce the goods and export the same to other country. This helps inincreasing the exports. Ø Foreign Firm’s Helps In Increasing TheCompetition: Foreign firms have always come up with better technology, process, andinnovations comparing with the domestic firms. They develop a completion inwhich the domestic firms will perform better it survives in the market.India announces new Foreign Direct Investment Policy, 2017 –2018The ability to entrance large scaleForeign Direct Investment (FDI) into India has been a key driver forpolicy making by the Government. Prime Minister Modi is along the right track,with India receiving FDI inflows worth USD 60.1 billion in 2016-17, which isall-time greater.
Therefore, the FDI policy of India is always closely watchedand carefully amended.The Department of Industrial Policyand Promotion (DIPP) had issued the updated and revised Foreign DirectInvestment Policy, 2017 – 2018 (FDI Policy 2017) on August 28,2017. TheFDI Policy 2017 incorporated various notifications issued by the Government ofIndia over the past year.The key amendments brought by the FDIPolicy 2017 to the erstwhile FDI Policy of 2016 and their potential impact onFDI in India:New Streamlined Procedure forGovernment ApprovalØ Abolition of the Foreign Investment PromotionBoard (FIPB):The Department of Economic Affairshas issued the most remarkable amendment to the FDI regime confirming theeradication of the FIPB (the erstwhile government body authorised to approveproposals for FDI requiring government approval); and the introducing the’Foreign Investment Facilitation Portal’ (FIFP), an administrative bodyto smoothen the path of FDI applicants on June 5th 2017.
Ø Introduction of Competent Authorities: The FDI Policy 2017 lists and defines sector-specific administrativeministry / department as ‘Competent Authorities’ empowered to grant governmentapproval for FDI. Competent Authorities listed in the FDI Policy 2017 includethe DIPP in respect of applications for FDI in the Single Brand, Multi Brandand Food Product retail trading and the Department of Economic Affairs of Indiafor FDI in the financial services sector.Ø Introduction of ‘Standard OperatingProcedure’ (SOP) to process FDI proposals: The DIPP had also issued the SOP which gives the detailed procedureand timeline for applications also the list of ‘competent authorities’ forprocessing government approvals for FDI in India.Revisions to existing provisionsof the FDI Policy of 2016The FDI Policy 2017 also incorporatesall Press Notes issued by the DIPP during the course of the year. Set out beloware the sector-specific significant amendments brought about in the last year:Ø Manufacturing: To further modify the manufacturing sector (which allowed 100% FDIunder the automatic route), 100% FDI under government approval route wasallowed for retail trading, including through e-commerce produced in India ,in respectof food products manufactured.Ø Civil Aviation: In existing projects the threshold for FDI under the automatic routewas raised from 74% to 100%.Ø Single Brand Retailing: Sourcing norms applicable for FDI were unwinded and won’t beapplicable up to 3 (three) years from commencement of the business which meansthe opening of the first store for entities undertaking single brand retailtrading of products having ‘state-of-art’ and ‘cutting-edge’ technology andwhere local sourcing is impossible.
Ø Other Financial Services: The previously applicable capitalisation norms for non-bankingfinancial services companies were dissolved, with applicability of sectorallaws and all other financial sector activities by entities already regulated byfinancial sector regulators fall under the 100% automatic route of investment. (Savani, 2017)Table-1FDIinflows to Major Sectors from Top Five Host Countries (in per cent) from2011-12 to 2015-16(November) (Rupees in Crores) Sectors Singapore Mauritius Netherlands US Japan Service Sector 18.6 18.9 15.4 19 20 Computer software and hardware 13.6 6.
2 3.2 9.8 1 Trading 11.8 2.4 10 3.2 4.6 Telecommunications 8.
6 11.5 0.3 2 0.1 Drugs & pharmaceuticals 6.6 1.0 0.6 2 3 Power 5.
0 6.1 2.7 4 0.3 Construction(infrastructure) 3.5 3.9 0.
2 3.5 0.5 Hotel tourism 2.
3 10.6 0.6 0.
8 0.1 Automobiles 1.9 1.5 8.7 17.8 21 Chemicals NA 1.
6 8.9 1.8 2.7 Petroleum and natural gas 0.7 1.
1 8.4 0.1 1.2 Mauritius largest source of FDI in India, says RBI According to a census by the ReserveBank, Mauritius was the largest source of foreign investment in India (21.8percent share at market value), followed by the US and the UK. Singapore (19.7percent) and Japan were the next two sources of foreign direct investment, saidthe Census on Foreign Liabilities and Assets of Indian Direct InvestmentCompanies 2016-17, released by RBI.
Out of the 18,667 companies that participatedin the census, 17,020 had FDI/overseas direct investment in their balancesheets in March 2017, 96% of the responding companies were unlisted in March2017 and many of them had received only inward FDI. Further, over 80 per cent of the15,169 companies that reported inward FDI were subsidiaries of foreigncompanies (single foreign investor holding over 50 per cent of the totalequity).From 3.6 a year ago, the ratio of market values ofinward to outward direct investment, increased to 4.3 in March 2017; equityparticipation accounted for 94 per cent and 79 per cent shares in inward andoutward FDI, respectively.(https://timesofindia.
indiatimes.com/business/india-business/mauritius-largest-source-of-fdi-in-india-says-rbi/articleshow/62571261.cms, 2018) Types of RoutesThereare two routes where India gets FDI:Automaticroute: Without the prior approval by Government or ReserveBank of India FDI is allowed by this routeGovernment route: By this route prior approval by governmentis needed. The application needs to be made through Foreign InvestmentFacilitation Portal, which will smoothen single window clearance of FDIapplication under Approval Route. The application will be carried forward tothe respective ministries which will act on the application as per the standardoperating procedure. Few Sectors in which FDI is allowedin IndiaAGRICULTUREAGRICULTURE AND ANIMALHUSBANDRY Sector/Activity % of Equity/FDI cap Entry Route a) Floriculture, Horticulture, and cultivation of Vegetables Mushrooms under controlled conditions; b) Development and Production of seeds and planting material; c) Animal Husbandry (including breeding of dogs), Pisiculture, Aquaculture, Apiculture d) Services related to agro and allied sectors 100% Automatic Theterm “under controlled conditions” means the following:Cultivationunder controlled conditions for the classification of horticulture,floriculture, mushrooms is the practice of cultivation wherein temperature, airhumidity, rainfall are controlled artificially.
PLANTATION SECTOR Sector/Activity %of Equity/FDI Cap Entry Route a) Tea sector including tea plantations b) Coffee plantations c) Rubber plantations d) Cardamom plantations e) Olive oil tree plantations f) Palm oil tree plantations 100% Automatic MANUFACTURINGTheFDI in manufacturing sector is automatic route. Therefore, a manufacturer ispermitted to sell the products which are manufactured in India throughwholesale and/or retail, including through e-commerce, without Governmentapproval. There is change in FDI policy provisions on trading sector, 100% FDIunder Government approval route is allowed for retail trading, includinge-commerce, and also food products manufactured and/or produced in India.DEFENCE Sector/Activity % of Equity/FDI Cap Entry Route Defence Industry subject to Industrial license under the Industries (Development & Regulation) Act, 1951; and Manufacturing of small arms and ammunition under the Arms Act, 1959 100% Automatic up to 49% Government route beyond 49% wherever it is likely to result in access to modern technology or for other reasons to be recorded CONCLUSIONEvenduring the recession period India has managed to show a positive GDP growth andhas been one of the developing countries.
Compare to the average growth rate ofworld GDP India has performed very well. India acquires all the variables suchas fine infrastructure, potential markets, abundant labour, availability ofnatural resources, and at last the economic and trades policies which favoursFDI. India is rated as the second-most favoured destination for FDI in theworld after China, As India has a large proportion of young population it isexpected that in future India would beat China with one of the fastest growingeconomies. The government should formulate more policies which can attract moreforeign investment in manufacturing sector rather than service sector.