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FDI in India: Recent trends and measures

The commerce and industry ministry says India has now become the topmost attractive destination for foreign investment. India’s FDI inflows were reported at a record $60.1 billion in 2016-17 in May 2017 (The Hindustan Times, dated May 19, 2017). Foreign Direct Investment in India increased by $3.409 billion in July of 2017. Foreign Direct Investment in India averaged $ 1.253 billion on monthly basis from 1995 until 2017, reaching an all time high of $ 5.670 billion in February of 2008 and a record low of – $ 60 million in February of 2014.

According to the commerce and industry ministry foreign direct investment inflows hit an all-time high of $60.1 billion in 2016-17. Another study by the Financial Times, entitles as “FDI in 2017”, India retained its top rank of being the world’s premier greenfield FDI investment destination for the second consecutive year, attracting $62.3 billion in 2016. India has remained ahead of China and the US as far as FDI inflows were concerned in the last year. The global investment landscape, the report said, has changed considerably in 2016 as FDI gravitated to locations experiencing the strongest economic growth, while locations in recession or facing high levels of uncertainty saw major declines. In 2016, greenfield FDI continued to rise worldwide, with capital investment increasing by more than 6% to $776.2 billion, its highest since 2011, alongside an increase in job creation by 5% to 2.02 million. However, the number of FDI projects declined 3% to 12,644. China has overtaken the US to become the second-biggest country for FDI by capital investment, recording $59 billion of announced FDI, compared with $48 billion-worth in the US. Globally, the real estate sector has claimed the top spot for capital investment, with $157.5 billion of announced FDI recorded in 2016, following an increase of 58%. In value terms, coal and natural gas witnessed an inflow of $121 billion, followed by alternate and renewable energy at $77 billion.

Measures taken by present government

The present government eased rules to lure global conglomerates to set up shop in sectors such as defence and railways. In the last three years, the government has eased 87 FDI rules across 21 sectors to accelerate economic growth and boost jobs. FDI inflows were at $55.6 billion for the year ending March 2016, which was a record. In 2016-17, the FDI inflows were even higher at $60.08 billion.

Since 2014, the Modi government opened up “conservative” sectors like rail infrastructure and defence. FDI reforms were also carried out in financial sector, medical devices and construction sectors. FDI rules were radically overhauled across sectors such as broadcasting, retail trading and air transport. The present government amended legislation to hike the foreign investment cap to 49% in insurance and pension from the earlier 26%. For retail trading of food products, the government permitted 100% FDI with unqualified condition that such food products have to be manufactured or produced in India.

 In addition, initiatives such as introduction of composite caps in the FDI policy and raising the FIPB approval limit were also undertaken to promote ease of doing business in the country. In a move to reduce red tape in government and facilitate ease of doing business, the Narendra Modi government on Wednesday abolished the Foreign Investment Promotion Board (FIPB) that vets foreign investment proposals. Finance minister Arun Jaitley had promised this in his February budget. Now such proposals will be scrutinised and cleared by departments concerned. Now timelines would be fixed for approving applications regarding FDI by competent authorities and a rejection by the department concerned has been made difficult as it now will mandatorily require concurrence of DIPP. So will the imposition of additional conditions other than provided in the FDI policy. For example, all FDI from Pakistan and Bangladesh and FDI proposals requiring approval in Private Security Agencies and manufacture of small arms to be approved by Ministry of Home Affairs.

Sectoral trends and sources of FDI in India

According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments India received during April-June 2017 stood at US$ 14.55 billion, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms is yielding results.

Data for April-June 2017 indicates that the services sector attracted the highest FDI equity inflow of US$ 1.88 billion, followed by computer software and hardware – US$ 1.32 billion and trading – US$ 769 million. Most recently, the total FDI equity inflows for the month of June 2017 touched US$ 3.12 billion.

During April-June 2017, India received the maximum FDI equity inflows from Mauritius (US$ 3.29 billion), followed by Singapore (US$ 3.01 billion), Germany (US$ 798 million), USA (US$ 660 million), and Netherlands (US$ 584 million).

Indian impact investments may grow 25 per cent annually to US$ 40 billion from US$ 4 billion by 2025, as per Mr Anil Sinha, Global Impact Investing Network’s (GIIN’s) advisor for South Asia.

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