Last updated: Jan, 2020
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. Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generating employment.
The Indian government’s favourable policy regime and robust business environment have ensured that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflows in India stood at US$ 446.11 billion during March 2000 to September 2019, indicating that government's effort to improve ease of doing business and relaxation in FDI norms is yielding results.
FDI equity inflows in India stood at US$ 26.09 billion during April-September 2019. Data for Q2 2019-20 indicates that the service sector attracted the highest FDI equity inflow of US$ 4.45 billion, followed by telecommunications sector - US$ 4.28 billion, computer software and hardware – US$ 4.02 billion, and trading – US$ 2.14 billion.
During Q2 2019-20, India received the maximum FDI equity inflows from Singapore (US$ 8.01 billion), followed by Mauritius (US$ 6.36 billion), Netherlands (US$ 2.32 billion), USA (US$ 2.15 billion), and Japan (US$ 1.78 billion).
Some of the recent significant FDI announcements are as follows:
In August 2019, government permitted 100 per cent FDI under the automatic route in coal mining for open sale (as well as in developing allied infrastructure like washeries).
In Union Budget 2019-20, the government of India proposed opening of FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders.
100 per cent FDI is permitted for insurance intermediaries.
As of February 2019, the Government of India is working on a road map to achieve its goal of US$ 100 billion worth of FDI inflows.
In February 2019, the Government of India released the Draft National E-Commerce Policy which encourages FDI in the marketplace model of e-commerce. Further, it states that the FDI policy for e-commerce sector has been developed to ensure a level playing field for all participants.
Government of India is planning to consider 100 per cent FDI in Insurance intermediaries in India to give a boost to the sector and attracting more funds.
In December 2018, the Government of India revised FDI rules related to e-commerce. As per the rules 100 per cent FDI is allowed in the marketplace-based model of e-commerce. Also, sales of any vendor through an e-commerce marketplace entity or its group companies have been limited to 25 per cent of the total sales of such vendor.
In September 2018, the Government of India released the National Digital Communications Policy, 2018 which envisages increasing FDI inflows in the telecommunications sector to US$ 100 billion by 2022.
In January 2018, Government of India allowed foreign airlines to invest in Air India up to 49 per cent with government approval. The investment cannot exceed 49 per cent directly or indirectly.
No government approval will be required for FDI up to an extent of 100 per cent in Real Estate Broking Services.
The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.
India has become the most attractive emerging market for global partners (GP) investment for the coming 12 months, as per a recent market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA).
Annual FDI inflows in the country are expected to rise to US$ 75 billion over the next five years, as per a report by UBS.
The Government of India is aiming to achieve US$ 100 billion worth of FDI inflows in the next two years.
Note: Conversion rate used as on November 2019, Re 1 = US$ 0.013995
References: Media Reports, Press Releases, Press Information Bureau, Press Trust of India
Last Updated: June 28, 2019