Foreign Direct Investment

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Last updated: Oct, 2014

Introduction

Foreign investments add a great deal to India’s economy. The continuous inflow of foreign direct investment (FDI), which is now allowed across several industries, clearly shows the faith that overseas investors have in the country's economy. FDI inflows to India increased 17 per cent in 2013 to reach US$ 28 billion, as per a United Nations (UN) report.

The Indian government’s policy regime and a robust business environment have ensured that foreign capital keep flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms in 2013, in sectors such as defense, PSU oil refineries, telecom, power exchanges and stock exchanges, among others. The same year, big global brands such as Tesco, Singapore Airlines and Etihad lined up to invest in India as the government opened more sectors to foreign investment.

Market size

Total FDI inflows into India in the period April 2000–August 2014 touched US$ 341,357 million. Total FDI inflows into India during the period April–August FY15 was US$ 17,445 million.

The services sector (US$ 2,336 million) attracted the highest FDI equity inflows in the period April–August 2014, followed by the services (US$ 1,086 million) and drugs & pharmaceuticals (US$ 903 million) sectors.

Mauritius led the share of top investing countries by FDI equity inflows into India with US$ 3,934 million during April-August FY15, followed by Singapore (US$ 1,892 million), the Netherlands (US$ 1,562 million) and Japan (US$ 897 million).

Investments

US-based Nike has made a proposal to the Department of Industrial Policy and Promotion (DIPP) to set up fully-owned stores in India. Nike is one of the world's largest suppliers of athletic shoes and apparel globally, with a market capitalisation of US$ 68 billion.

US-based Milacron Llc plans to invest US$ 30 million in the next three years in its India operations – Ferromatik Milacron India Pvt Ltd (FMI), as per president and CEO, Mr Thomas Goeke. FMI manufactures plastic moulding machines at its plants in Ahmedabad in Gujarat and Coimbatore in Tamil Nadu.

Bengal looks set for one of its biggest foreign investments. A large private equity firm which has exposure in social infrastructure and agriculture plans to invest over Rs 300 crore (US$ 49.02 million) in the proposed Dankuni food park promoted by Keventer Group.

The Foreign Investment Promotion Board (FIPB) has approved a proposal from InterGlobe Aviation, the company that runs IndiGo, to reclassify shareholding of promoter Rakesh Gangwal as Non-Resident Indian (NRI) from FDI at present. This move enables the airline to have access to fresh FDI.

Norway's Telenor Group plans to invest an additional Rs 780 crore (US$ 127.47 million) to increase its ownership in Indian subsidiary Uninor to 100 per cent; Telenor currently owns a 74 per cent stake in Uninor.

Chinese telecom equipment maker ZTE Corporation plans to establish a Global Network Operating Centre (GNOC) in India. The centre will seek to manage the networks of multiple telecom carriers in Asia and Africa.

Japan's Suzuki Motor Corporation (SMC), the parent company of Maruti Suzuki, will spend Rs 18,500 crore (US$ 3.02 billion) to establish a new factory in Gujarat. SMC plans to establish a 100 per cent subsidiary, Suzuki Motor Gujarat (SMG), to manufacture cars on a strictly no-loss, no-profit basis for Maruti Suzuki.

US-based Leapfrog Investment has bought a minority stake in Chennai-based financial services provider IFMR Capital Finance for US$ 29 million. This marks Leapfrog's third investment in India, after having earlier backed insurance distribution firm Mahindra Insurance Brokers and Shriram CCL.

Government Initiatives

India’s cabinet has cleared a proposal which allows 100 per cent FDI in railway infrastructure, excluding operations. Though the move does not allow foreign firms to operate trains, it allows them to do other things such as create the network and supply trains for bullet trains etc.

Based on the recommendations of the FIPB in its 207th meeting held on July 4, 2014, the government approved 14 proposals of FDI amounting to about Rs 1,528.38 crore (US$ 249.78 million).

Additionally, based on the recommendations of the FIPB in its meeting held on June 11, 2014, the government approved 19 proposals of FDI amounting to about Rs 2,326.72 crore (US$ 380.25 million).

The Union Cabinet has cleared a bill to raise the foreign investment ceiling in private insurance companies from 26 per cent to 49 per cent, with the proviso that the management and control of the companies must be with Indians.

The Reserve Bank of India (RBI) has allowed a number of foreign investors to invest, on repatriation basis, in non-convertible/ redeemable preference shares or debentures which are issued by Indian companies and are listed on established stock exchanges in the country.

In an effort to bring in more investments into debt and equity markets, the RBI has established a framework for investments which allows foreign portfolio investors (FPIs) to take part in open offers, buyback of securities and disinvestment of shares by the Central or state governments.

Road Ahead

Foreign investment inflows are expected to increase by more than two times and cross the US$ 60 billion mark in FY15 as foreign investors start gaining confidence in India’s new government, as per an industry study. "Riding on huge expectations from the incoming Modi government, global investors are gung ho on the Indian economy which is expected to witness over 100 per cent increase in foreign investment inflows – both FDI and FIIs – to above US$ 60 billion in the current financial year, as against US$ 29 billion during 2013-14," according to the study.

India will require around US $1 trillion in the 12th Five-Year Plan (2012–17), to fund infrastructure growth covering sectors such as highways, ports and airways. This requires support in terms of FDI. The year 2013 saw foreign investment pour into sectors such as automobiles, computer software and hardware, construction development, power, services, and telecommunications, among others.

Download PDF FDI statistics for the month of September 2014 (Size: 570 KB)

Exchange Rate Used: INR 1 = US$ 0.0163 as on October 28, 2014

References: Media Reports, Press Releases, Press Information Bureau

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