Foreign Investment In India

V64-Krish Joshi
V48-Nadar Vaikundaraja
 Introduction
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in
one country by an entity based in another country. It is thus distinguished from a foreign portfolio
investment by a notion of direct control. Broadly, foreign direct investment includes "mergers and
acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra
company loans". FDI is the sum of equity capital, long-term capital, and short-term capital as shown in
the balance of payments. FDI usually involves participation in management, joint-venture, transfer of
technology and expertise. Stock of FDI is the net (i.e., outward FDI minus inward FDI) cumulative FDI
for any given period. Direct investment excludes investment through purchase of shares (if that purchase
results in an investor controlling less than 10% of the shares of the company).

Foreign direct investment in India is a major monetary source for economic development in India.
Foreign companies invest directly in fast growing private auspicious businesses to take benefits of cheaper
wages and changing business environment of India. Economic liberalization started in India in wake of the
1991 economic crisis and since then FDI has steadily increased in India,[ which subsequently generated
more than one crore (10 million) jobs.

On 17 April 2020, India changed its foreign direct investment (FDI) policy to protect Indian companies
from "opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic",
according to the Department for Promotion of Industry and Internal Trade. While the new FDI policy does
not restrict markets, the policy ensures that all FDI will now be under scrutiny of the Ministry of
Commerce and Industry.
 FDI IN INDIA
The investment climate in India has improved tremendously
since 1991 when the government opened up the economy and
initiated the LPG strategies.
The improvement in this regard is commonly attributed to
the easing of FDI norms.
Many sectors have opened up for foreign investment partially
or wholly since the economic liberalization of the country.
Currently, India ranks in the list of the top 100 countries in
ease of doing business .
In 2019, India was among the top ten receivers of FDI,
totaling $49 Billion, as per UN report.
Types of Foreign Investment in India
There are mainly two types of Foreign Investment in
India - Horizontal and Vertical.
Horizontal: Under this type of FDI, a business expands
its inland operation to another country. The business
undertake the same activities but in foreign country.
Vertical: In this case, a business expands into another
country by moving to a different level of supply chain.
Thus business undertakes different activities overseas but
these activities are related to main business.
 Routes

There are two routes by which India gets FDI.

Automatic route: By this route FDI is allowed

without prior approval by Government or Reserve
Bank of India.
Government route: Prior approval by government
is needed via this route. The application needs to be
made through Foreign Investment Facilitation Portal,
which will facilitate single window clearance of FDI
application under Approval Route
 Sectors
 During 2014–16, India received most of its FDI
from Mauritius, Singapore, Netherlands, Japan and the US. On 25 September
2014, Government of India launched Make in India initiative in which policy
statement on 25 sectors were released with relaxed norms on each sector.
Following are some of major sectors for Foreign Direct Investment (Foreign
Investment in India)

1. Infrastructure
2. Electronics system design and manufacturing
3. Information technology
4. Pharmaceuticals
5. Service
6. Airlines
 Government Initiatives
 The Government of India has amended FDI policy to increase FDI inflow. In 2014,
the government increased foreign investment upper limit from 26% to 49%
in insurance sector. It also launched Make in India initiative in September 2014
under which FDI policy for 25 sectors was liberalized further. As of April 2015, FDI
inflow in India increased by 48% since the launch of "Make in India" initiative. In
May 2020, government increased FDI in defence manufacturing under the automatic
route from 49% to 74%. In April 2020, government amended existing consolidated
FDI policy for restricting opportunistic takeovers or acquisition of Indian companies
from neighbouring nations.In March 2020,government permitted Non Resident
Indians (NRIs) to acquire up to 100% stake in Air India
 Coronavirus pandemic impact
On 18 April 2020, the government of India passed an order that would
protect Indian companies from FDI during the
pandemic. All countries sharing a land border with India would now face scrutiny
from the Ministry of Commerce and Industry before any FDIs. These changes
were incorporated in the Consolidated FDI policy released on 28 October 2020.
MARKET SIZE
1. India's FDI inflows have increased 20 times from 2000-01 to 2021-22.
According to the Department for Promotion of Industry and Internal Trade
(DPIIT), India's cumulative FDI inflow stood at US$ 847.40 billion between
April 2000-March 2022; this was mainly due to the government's efforts to
improve the ease of doing business and relax FDI norms.

2. The total FDI inflow into India from January to March 2022 stood at US$
22.03 billion, while the FDI equity inflow for the same period was US$ 15.59
billion.

3. From April 2021-March 2022, India's computer software and hardware

industry attracted the highest FDI equity inflow amounting to US$ 14.46 billion,
followed by the automobile industry at US$ 6.99 billion, trading at US$ 4.53
billion and construction activities at US$ 3.37 billion.

5. The state that received the highest FDI during this period was Karnataka at
US$ 22.07 billion, followed by Maharashtra (US$ 15.43 billion), Delhi (US$
8.18 billion), Gujarat (US$ 2.70 billion) and Haryana (US$ 2.79 billion).
 ROAD AHEAD
India has recently become a major global hub for FDIs. According to a
survey, India was among the top three global FDI destinations; about 80%
of the global respondents had plans to invest in India.

Furthermore, in recent years, India has provided huge corporate tax cuts
and simplified labour laws. 

The country has also reduced its restrictions on FDI; overall FDI
restrictions have reduced from 0.42 to 0.21 in the last 16 years.

All these factors together may help India attract FDI worth US$ 120-160
billion per year by 2025.
 Conclusion
 FDI investment in India. Positive side of the story is the tremendous
resilience of the economy, rapid growth of Indian agriculture, boost up to
infrastructural facilities, the tremendous global outsourcing boom in
India and a well-regulated and deep capital market. Looking at the
current rate of FDI inflow India can attract a record of $12 billion FDI
inflow this fiscal year.

 FDI is not only an alternative to domestic investment, but also can

improve the host country’s balance of payments. It is one of the major
stimuli to economic development of the developing countries. In such a
way FDI plays an important role in economic growth and generating
employment in a globalized world.
Thank You!