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Foreign Direct Investment

Bhausaheb Sanap
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 knowhow 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
Market size
According to Department of Industrial Policy and Promotion (DIPP),
the total FDI inflows soared by 24.5 per cent to US$ 44.9 billion
during FY2015, as compared to US$ 36.0 billion in FY2014. FDI into
India through the Foreign Investment Promotion Board (FIPB) route
shot up by 26 per cent to US$ 31.9 billion in the year FY2015 as
against US$ 25.3 billion in the previous year, indicating that

6 billion (151 deals). Some of the recent significant FDI announcements are as follows: . Investments/ developments Based on the recommendations of Foreign Investment Promotion Board (FIPB). in a meeting held on September 29. Mining and Telecom witnessed higher FDI inflows. According to the data released by Grant Thornton India. followed by Singapore (US$ 6. Healthy inflow of foreign investments into the country helped India’s balance of payments (BoP) situation and stabilised the value of rupee.government's effort to improve ease of doing business and relaxation in FDI norms is yielding results. India received the maximum FDI equity inflows from Mauritius at US$ 9.08 billion) and the US (US$ 1. 2015. whereas IT services and trading (wholesale.05 billion as compared to US$ 1. Most recently. Data for FY2015 indicates that the increase in the FDI inflows was primarily driven by investments in infrastructure and services sector.82 billion).000 crore (US$ 770 million).43 billion). Netherlands (US$ 3. Oil & Gas. the total merger and acquisitions (M&A) and private equity (PE) deals in the month of August 2015 were valued at US$ 2. the Government. Japan (US$ 2.03 billion. Within Infrastructure.9 billion in the same period last year. During FY2015. cash & carry) drove the services inflows.74 billion). the total FDI inflows for the month of June 2015 touched US$ 2. which is 62 per cent higher in volume as compared to August 2014. approved 18 proposals of FDI amounting to approximately Rs 5.

ThyssenKrupp Elevator.5 million) to set up a manufacturing plant in Chakan. Kellogg Co. has signed an agreement with Shree Uttam Steel and Power (part of Uttam Galva Group) to set up a steel plant at Satarda in Maharashtra. which will be used for faster inter-city travel. with an investment expectation of Rs 3. world's largest cereal maker. Pune. near Mumbai. the multinational Korean steel company.  The Government of Karnataka has signed an agreement with the Taiwan Electrical and Electronic Manufacturers Association for the purpose of creating a Taiwanese electronic manufacturing cluster near the Bengaluru airport.  Foxconn has signed a Memorandum of Understanding (MoU) with Maharashtra state government to invest US$ 5 billion over the next three years for setting up a manufacturing unit between Mumbai and Pune. Hyundai-ROTEM.  Germany-based ThyssenKrupp group is aiming to double its revenue from India to US$ 1 billion in next three-four years while the group’s elevator unit.200 crore (US$ 500 million).  Global giants such as Bombardier.  Posco Korea. is making large investments in manufacturing and plans to set up its first Research and Development (R&D) facility in India at Taloja. . TALGO and CAF have queued up to manufacture semi high-speed train sets in India. plans to invest EUR 44 million (US$ 50.

a US based Private Equity (PE) firm. has planned to invest Rs 850 crore (US$ 132. Government Initiatives The Government of India has amended the FDI policy regarding Construction Development Sector.8 million) in Ecom Express – an India based logistics solutions provider. it has indicated that conditions of area restriction and minimum capitalisation will not apply to cases committing 30 per cent of the project cost towards affordable housing. . opened its first store in Delhi and plans to open 40 more stores in the next 4–5 years which will be spread across the top 10 cities in India. Google Fibre broadband services and Street view. has planned to invest US$ 10 billion in India in the next 10 years which will be used to construct retail properties and industrial townships.  Warburg Pincus.500 crore (US$ 234. The amended policy includes easing of area restriction norms. a US based retail chain. Swedish home furnishing brand Ikea has made a long-term plan of opening 25 stores in India by making an investment worth Rs 12.9 billion).  Google plans to invest Rs 1..  Dalian Wanda Group.500 crore (US$ 1. reduction of minimum capitalisation and easy exit from project.3 million) for a new campus in Hyderabad which will be focused on three key areas — Google Education. Further. in order to provide boost to low cost affordable housing.  Gap Inc. one of China’s largest real estate firms.

This decision is expected to expedite the approval process and result in increased foreign investment inflow. The Government of India recently relaxed the FDI policy norms for Non-Resident Indians (NRIs). qualified foreign investment. The limit is composite in nature as it includes foreign investment in the form of foreign portfolio investment. foreign institutional investment. and non-resident investment. .200 crore (US$ 187 million). The renewed policy is also expected to encourage development of low cost affordable housing in the country and of smart cities. The government has also raised FDI cap in insurance from 26 per cent to 49 per cent through a notification issued by the DIPP. the non-repatriable investments made by the Persons of Indian Origin (PIOs). Under this. foreign venture capital investment. Overseas Citizens of India (OCI) and NRIs will be treated as domestic investments and will not be subject to FDI caps. The Cabinet Committee on Economic Affairs (CCEA) has raised the threshold for foreign direct investment requiring its approval to Rs 3.Relaxation of FDI norms is expected to result in enhanced inflows in Construction Development sector consequent to easing of sectoral conditions and clarification of terms used in the policy.000 crore (US$ 469 million) from the present Rs 1. It is likely to attract investments in new areas and encourage development of plots for serviced housing given the shortage of land in and around urban agglomerations as well as the high cost of land.

Though the initiative does not allow foreign firms to operate trains.India’s cabinet cleared a proposal which allows 100 per cent FDI in railway infrastructure. it allows them to invest in areas such as creating the network and supplying trains for bullet trains etc. excluding operations. Road ahead According to United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2015. market size and infrastructure among others. India is likely to grant most favoured nation (MFN) treatment to 15 countries that are in talks regarding an agreement on the Regional Comprehensive Economic Partnership (RCEP). macroeconomic environment. The report also mentioned that the FDI inflows to India are likely to exhibit an upward trend in 2015 on account of economic recovery. The Government of India plans to further simplify rules for Foreign Direct Investment (FDI) such as increasing FDI investment limits in sectors and include more sectors in the automatic approval route. education. India also jumped 16 notches to 55 among 140 countries in the World Economic Forum’s Global Competitiveness Index that ranks countries on the basis of parameters such as institutions.which would result in significant easing of investment rules for these countries. India acquired ninth slot in the top 10 countries attracting highest FDI in 2014 as compared to 15th position last year. to attract more investments in the country. .

telecommunications. ports and airways. • No change in 49 percent FDI limit in civil aviation. among others.India will require around US$ 1 trillion in the 12th Five-Year Plan (2012–17). Press Information Bureau FDI cap in telecom raised to 100 percent from 74 percent. Press Releases. • 100 percent FDI allowed in single brand retail. Exchange Rate Used: INR 1 = US$ 0. • FDI cap in defence production to stay at 26 percent. • FDI limit in insurance sector raised to 49 percent from present 26 percent. 49 percent through automatic. computer software and hardware. to fund infrastructure growth covering sectors such as highways. 2015 References: Media Reports. higher investment may be considered in state-of-the-art technology production by Cabinet Committee on Security (CCS). from earlier approval route. foreign investment was witnessed in sectors such as services. This would require support from FDI flows. Representational Image.015 as on October 26. up to 49 percent through automatic route and beyond via FIPB. construction development. . 49-100 percent through FIPB. trading. During 2014. and automobile. Reuters • FDI up to 49 ppercent in petroleum refining allowed under automatic route. power. subject to Parliament approval.

from earlier FIPB route. of this up to 49 percent will be under automatic route.• In power exchanges 49 percent FDI allowed through automatic route. depositories allowed under automatic route. • FDI limit increased in credit information companies to 74 percent from 49 percent. • Raised FDI in asset reconstruction companies to 100 percent from 74 percent. • FDI in tea plantation up to 49 percent through automatic route. . • FDI up to 100 percent through automatic route allowed in courier services. • FDI up to 49 percent in stock exchanges. media. brownfield pharma and multi-brand retail. 49100 percent through FIPB route. • No decision taken on FDI cap in airports.

FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. But FDI is quite different from it as they invest in a foreign nation. FII can enter . this is not possible. the companies only need to get registered in the stock exchange to make investments. But in Foreign Direct Investment. In FII. FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. In simple words. The Foreign Institutional Investor is also known as hot money as the investors have the liberty to sell it and take it back.What is the difference between FDI and FII? FDI vs FII Both FDI and FII is related to investment in a foreign country. On the contrary.

This difference is what makes nations to choose FDI’s more than then FIIs. In an FDI.the stock market easily and also withdraw from it easily. Foreign Direct Investment only targets a specific enterprise. The FII investment flows only into the secondary market. FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment for the whole economy. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. FDI not only brings in capital but also helps in good governance practises and better management skills and . the capital inflow is translated into additional production. ButFDI cannot enter and exit that easily.

Summary 1. But FDI cannot enter and exit that easily. the FII flows into secondary market.even technology transfer. it does not come out with any other benefits of the FDI. The FII increasing capital availability in general. FII is an investment made by an investor in the markets of a foreign nation. On the contrary. FDI is an investment that a parent company makes in a foreign country. Foreign Direct Investment targets a specific enterprise. 2. . the FDI’s are long term. While FIIs are short-term investments. Though the Foreign Institutional Investor helps in promoting good governance and improving accounting. FII can enter the stock market easily and also withdraw from it easily. 3. While the FDI flows into the primary market. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor Imp .4.