Article 2A: About FDI in India

 Introduction
Apart from being a critical driver of economic growth, Foreign Direct
Investment (FDI) has been a major 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 like tax exemptions, etc. For a country where foreign
investment is being made, it also means achieving technical know-
how and generating employment.
The Indian Government’s favourable policy regime and robust
business environment has 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, among others.

Market size
According to Department for Promotion of Industry and Internal
Trade (DPIIT), FDI equity inflow in India stood at US$ 469.99 billion
during April 2000 and March 2020, indicating that Government's
effort to improve ease of doing business and relaxing FDI norms has
yield results.
FDI equity inflow in India stood at US$ 49.97 billion in 2019-20. Data
for 2019-20 indicates that service sector attracted the highest FDI
equity inflow of US$ 7.85 billion, followed by computer software and
hardware at US$ 7.67 billion, telecommunications sector at US$ 4.44
billion, and trading at US$ 4.57 billion.
During 2019-20, India received the maximum FDI equity inflow from
Singapore (US$ 14.67 billion), followed by Mauritius (US$ 8.24
billion), Netherlands (US$ 6.50 billion), USA (US$ 4.22 billion) and
Japan (US$ 3.22 billion).

Investments/ Developments
Some of the significant FDI announcements made recently are as
follows:

 On August 21, 2020, the Government of Singapore announced

investment of Rs 450 crore (US$ 63.84 million) with mall
developer Phoenix Mills Ltd.
 On August 14, 2020, Israel-based Coralogix, provider of
machine-learning based log analytics and monitoring solution,
announced a strategic expansion into India with a commitment
to invest over US$ 30 million in the next five years.
 Between April 23 and July 16, 2020, Jio Platforms Ltd. sold
25.24 per cent stake worth Rs 1.52 trillion (US$ 21.57 billion) to
various global investors from separate deals involving
 Facebook, Silver Lake, Vista, General Atlantic, Mubadala, Abu
Dhabi Investment Authority (ADIA), TPG Capital, L. Catterton,
Public Investment Fund (PIF), Intel Capital, Qualcomm Ventures
and Google. This is the largest continuous fundraise by any
company in the world.
 In May 2020, Philips, Dutch health tech and consumer
electronics company, announced its plan to invest Rs 250-300
crore (US$ 35.47-42.56 million) to boost its manufacturing and
R&D facilities in India.
 In January 2020, Mastercard announced its plans to invest up
to US$ 1 billion in India over the next five years to double its
research and development effort in the Indian market.
 In October 2019, French oil and gas giant, Total S.A., acquired
37.4 per cent stake in Adani Gas Ltd for Rs 5,662 crore (US$ 810
million), making it the largest FDI in India’s city gas distribution
(CGD) sector.
 In August 2019, Reliance Industries (RIL) announced one of
India's biggest FDI deals with Saudi Aramco to buy a 20 per cent
stake in Reliance's oil-to-chemicals (OTC) business at an
enterprise value of US$ 75 billion.

 
Government Initiatives
In May 2020, Government increased FDI in defence manufacturing
under the automatic route from 49 per cent to 74 per cent.
In April 2020, Government amended existing consolidated FDI policy
for restricting opportunistic takeovers or acquisition of Indian
companies from neighbouring nations. The Department for
Promotion of Industry and Internal Trade (DPIIT) of the Ministry of
Commerce and Industry revised the policy on foreign investments,
making it mandatory for all entities based in the neighbouring
countries to seek prior. approval from the government before
investing in India. While only the entities based in Bangladesh and
Pakistan earlier needed approval from the government to invest in
India, the new revision made it a mandatory requirement for all
neighbouring countries, including China. New Delhi’s move is aimed
at preventing attempts by China’s state-owned entities to take over
the companies in India, taking advantage of their stress on the
economy in the wake of the COVID-19 pandemic.
In March 2020, Government permitted non-resident Indians (NRIs) to
acquire up to 100 per cent stake in Air India.
In August 2019, Government permitted 100 per cent FDI under the
automatic route in coal mining
In Union Budget 2019-20, the Government of India proposed
opening FDI in aviation, media (animation, AVGC) and insurance
sectors in consultation with all stakeholders. 100 per cent FDI is
permitted in insurance intermediaries.

As of February 2019, the Government of India has been working on a

road map to achieve its goal of US$ 100 billion worth of FDI inflow.
In February 2019, the Government of India released the Draft
National E-Commerce Policy to encourage FDI in the marketplace
model of E-commerce. Further, it stated that the FDI policy for E-
commerce sector was developed to ensure a level playing field for all
participants.
Government of India had been planning to consider 100 per cent FDI
in insurance intermediaries in India to give a boost to the sector and
attract more funds.
In December 2018, the Government of India revised FDI rules related
to E-commerce. As per the revised rules, 100 per cent FDI was
allowed in the marketplace-based model of E-commerce. Also, sales
of any vendor through an E-commerce marketplace entity or its
group companies was limited to 25 per cent of the total sales of such
vendor.
Road ahead
India is going to be 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).
The Government of India is aiming to achieve US$ 100 billion worth
of FDI inflow in the next two years.
India hopes to continue FDI growth story in 2020

Enthused by a record foreign investment inflow, India is optimistic of

continuing to be one of the world's favourite FDI destinations in 2020
on the back of the Modi government's liberalised norms and a
significant jump in the ease of doing business ranking.
Secretary in the Department for Promotion of Industry and Internal
Trade (DPIIT) Guruprasad Mohapatra said that despite a slowdown in
the global economy, inflows of foreign investment into the country
have not been impacted.

"Ease of doing business is very critical for FDI. Foreign companies

look into the World Bank's ranking and they have been very
impressed with India's much-improved ranking so far. Our target is to
go into the first 50th," he said.

Mohapatra said that improvement in the business environment gives

a pleasant experience to foreign investors as it helps in making
processes easier. "Some of the states are also wooing investments.
So, we need to further work on the areas in which the
investments ...are coming and see how quickly and seamlessly, we
can give them approvals. These are the challenges and we are
working on that," he added.
When asked about the global companies which are looking to shift
their bases  from China to India, he said the government is focusing
on those firms which are looking at India as a second investment
destination.
In the World bank's doing business report, India's rank has improved
to 63rd this year among 190 economies from 77th last year.
The department is also holding a series of meetings to further relax
foreign direct investment norms in the coming months in areas like
AVGC (animation, visual effects, gaming and comics), and insurance.
Although, the FDI is allowed through automatic route in most of the
sectors, certain areas such as defence, telecom, media,
pharmaceuticals and insurance, government approval is required.

Under the government route, the foreign investor has to take prior
approval of the respective ministry/department. Through the
automatic approval route, the investor just has to inform the RBI
after the investment is made.

There are nine sectors where FDI is prohibited and that includes
lottery business, gambling and betting, chit funds, Nidhi company,
real estate business, and manufacturing of cigars, cheroots, cigarillos
and cigarettes using tobacco.

This year, the government has relaxed FDI norms in several sectors
like single-brand retail trading, contract manufacturing, coal mining,
and digital media.
India mainly attracts investments from countries like Mauritius,
Singapore, Japan, the UK, the Netherlands, the US, Germany, Cyprus,
France, and the UAE.

The sectors that received maximum FDI include services, computer

hardware and software, construction development, trading,
automobile, pharmaceuticals, chemicals, and power.
The commerce and industry ministry has also started ranking of
states on their ease of doing business. It has also decided to help the
states undertake a similar exercise for their respective districts.
FDI is important as India would require huge investments in the
coming years to overhaul its infrastructure sector to boost growth.
Healthy growth in foreign inflows helps maintain the balance of
payments and the value of the rupee.

Questions:

1. Discuss the advantages of FDI to a host country.

2. What is strategic investment? Give examples from the article.
3. Discuss the recent changes in FDI norms by the government in the
wake of the COVID-19 pandemic.
4. Name few sectors where government has recently liberalised FDI
limit.
5. List the sectors where FDI is prohibited.