Foreign direct investment in India

Foreign direct investment (FDI) in India is a 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] which subsequently generated more than one crore (10 million) jobs. According to the Financial Times, in 2015 India overtook China and the United States 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]

On 17 April 2020, India changed its foreign direct investment (FDI) policy to protect Indian companies from "opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic", according to the Department for Promotion of Industry and Internal Trade.[7][8][9][10] While the new FDI policy does not restrict markets, the policy ensures that all FDI will now be under scrutiny of the Ministry of Commerce and Industry.[11][12]

Routes

There are two routes by which India gets FDI.[13]
1. Automatic route: By this route FDI is allowed without prior approval by Government or Reserve Bank of India.[13]
2. 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.[14] 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 17 April, which was the 245th meeting of the Board.[13][15] On 24 May 2017, Foreign Investment Promotion Board was scrapped by the Union Government.Henceforth, the work relating to processing of applications for FDI and approval of the Government thereon under the extant FDI Policy and FEMA, shall now be handled by the concerned Ministries/Departments in consultation with the Department for Promotion of Industry and Internal Trade(DPIIT) , Ministry of Commerce, which will also issue the Standard Operating Procedure (SOP) for processing of applications and decision of the Government under the extant FDI policy[16]

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.[17][18] As of April 2015, FDI inflow in India increased by 48% since the launch of "Make in India" initiative.[19]

India was ranking 15th in the world in 2013 in terms of FDI inflow, it rose up to 9th position in 2014[20] while in 2015 India became top destination for foreign direct investment.[3] The Department for Promotion of Industry and Internal Trade and Invest India has developed the India Investment Grid (IIG) which provides a pan-India database of projects from Indian promoters for promoting and facilitating foreign investments.

Coronavirus pandemic impact

On 18 April 2020, the government of India passed an order that would protect Indian companies from FDI during the pandemic. All countries sharing a land border with India would now face scrutiny from the Ministry of Commerce and Industry before any FDIs.[21]

Sectors

During 2014–16, India received most of its FDI from Mauritius, Singapore, Netherlands, Japan and the US. [22] 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.[23] Following are some of major sectors for Foreign Direct Investment.

Infrastructure

10% of India's GDP is based on construction activity. Indian government has invested $1 trillion on infrastructure from 2012–2017. 40% of this $1 trillion had to be funded by private sector. 100% FDI under automatic route is permitted in construction sector for cities and townships.[24][25][26]

Automotive

FDI in automotive sector was increased by 89% between April 2014 to February 2015.[27] India is 7th largest producer of vehicles in the world with 25.5 million vehicles annually. 100% FDI is permitted in this sector via automatic route. Automobiles shares 7% of the India's GDP.[28]

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.[29] 74% FDI is permitted in this sector.[30][31][32]

Service

FDI in service sector was increased to 46% in 2014–15. It is US $1.88 billion in 2017. Service sector includes banking, insurance, outsourcing, research & development, courier and technology testing.[33] FDI limit in insurance sector was raised from 26% to 49% in 2014.[34]

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.[35][36] 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$13 billion) is expected in these projects so far.[37]

Chemicals

Chemical industry of India earned revenue of $155–160 billion in 2013.[38] 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.[39] India's share in global specialty chemical industry is expected to rise from 2.8% in 2013 to 6–7% in 2023.[40]

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.[41] During year 2013–14, FDI in textile sector was increased by 91%.[42] Indian textile industry is expected reach up to $141 billion till 2021.[43]

Airlines

Foreigner investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100%.

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