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FDI

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Foreign Direct Investment (FDI) in India

April, 2013

Introduction

'Indian economy is capable of absorbing US$ 50 billion in foreign direct investment (FDI) per year', said Mr P Chidambaram, the Finance Minister, India. FDI is an economic segment that enjoys intense focus and attention from policy makers of the highest rank in the administration.

The Government relaxed FDI regime in sectors including multi-brand retail, single-brand retail, commodity exchanges, power exchanges, broadcasting, non-banking financial institutions (NBFCs) and asset reconstruction companies (ARCs) in 2012.

There were several big-bang reforms and the Government allowed 51 per cent FDI in multi-brand retail and 49 per cent in the aviation sector. FDI cap was also raised from 49 per cent to 74 per cent in broadcasting and ARCs, with an aim to bring foreign expertise in the segments. Foreign investment has also been allowed in power exchanges while foreign institutional investors (FIIs) have been allowed to invest up to 23 per cent in commodity exchanges without seeking prior approval from the Government.

Thus, reforms and policies at such a massive level indicate that Indian FDI landscape offers a plethora of opportunities to foreign investors as the economy is booming and vibrant as compared to its global peers.

Furthermore, favourable demographics and growth opportunities keep India an 'attractive' destination for merger and acquisition (M&A) activities across diverse sectors including consumer goods and pharmaceuticals, according to global consultancy Ernst & Young.

Key Statistics

  • India received FDI worth US$ 30.82 billion during April-January 2012-13 while FDI equity inflows during January 2013 stood at US$ 2.16 billion, according to latest data released by the Department of Industrial Policy and Promotion (DIPP).

    The sectors which have received high level of FDI during the first ten months of 2012-13 include services (US$ 4.66 billion), construction (US$ 1.21 billion), drugs & pharmaceuticals (US$ 1 billion), hotel and tourism (US$ 3.19 billion), metallurgical industries (US$ 1.38 billion) and automobile (US$ 895 million)

    Country wise, high levels of FDI came during the period from Mauritius (US$ 8.17 billion), Singapore (US$ 1.82 billion), the UK (US$ 1.05 billion), Japan (US$ 1.69 billion) and the Netherlands (US$ 1.52 billion), showed the DIPP data

  • The value of M&A deals in India stood at US$ 4.5 billion in the March 2013 quarter, according to Thomson Reuters’ India M&A First Quarter 2013 Review. Meanwhile, there were 90 private equity (PE) deals valuing US$ 1.04 billion during January-March 2013 quarter, reveal data from Four-S Services
  • India's foreign exchange (forex) reserves stood at US$ 292.64 billion for the week ended March 29, 2013, according to data released by the Central Bank. The value of foreign currency assets (FCA) - the biggest component of the forex reserves – stood at US$ 259.72 billion, according to the weekly statistical supplement released by the Reserve Bank of India (RBI)