Foreign direct investment is one of the
measures of growing economic globalization. There has been always issue with
investment for the developing nations such as India. The world has been
globalizing and all the countries are liberalizing their policies and welcoming
investment from countries which are large enough in capital resources. The
developed economies are focusing on new markets where there is existence of
abundant labors, scope for products, and high profits are achieved. Hence,
Foreign Direct Investment (FDI) has become a battle ground in the emerging
markets. The main idea behind allowing FDI is to supplement and complement domestic
investment is to achieve a higher level of economic development and providing
opportunities for technological upgradation also access to global managerial
skills and practices.
South Asian countries such as China have
incorporated open door policies during 1980’s but India liberalized its
policies in 1991.India followed conservative policies before pre-liberalization
to protect the indigenous industrialist and investors, therefore could not
achieve economic growth. In 1991, the then congress government had implemented
liberalization policies to restructure the Indian economy.
NEED FOR FDI IN INDIA
Capital has been one of the scare resources as
India is a developing nation that are usually required for economic
development. As the capital is limited, there are many issues such as health,
poverty, employment, education, research and development, technology obsolesce,
global competition. The flow of FDI in India from across the world will help in
acquiring the funds at cheaper cost, better technology, employment generation,
and upgraded technology transfer, scope for more trade, linkages and spillovers
to domestic firms. The following arguments are advanced in favor of foreign
Ø Sustaining A Greater
Level Of Investment: All the under developed and the growing nations need to
industrialize and grow, consequently it ends up plainly important to build the
level to venture considerably. On account of neediness and low GDP the sparing
are low. In this manner, there is a need to fill the hole amongst funds and
salary through outside direct speculations.
Ø Technological Gap: In
Indian situation we require specialized help from remote hotspot for
arrangement if master administrations, preparing of Indian work force and
instructive, research and preparing organizations in the business. It just
comes through private outside speculation or remote joint efforts.
Ø Exploitation Of Natural
Resources: We have plenty natural resources, for example, coal, iron and steel
yet we require more effort to separate the resources.
Ø Understanding The Initial
Risk: As capital is comparatively less in developing nations, there is abnormal
state of hazard in putting resources into new pursuits or undertakings for
industrialization. Hence, outside capital aides in these speculations which
require high hazard.
Ø Development Of Basic Economic
Infrastructure: The outside money related foundations and administration of
cutting edge nations have sufficiently made capital accessible to the immature
nations. FDI will help in building up the foundation by setting up company’s
diverse parts of the nation.
There are exceptional financial zones which
have been created by government for extemporizing the mechanical development.
Ø Improvement In The
Balance Of Payments Position: The inflow FDI will help in enhancing the adjust
of installment. Firms which feel that the merchandise created in India will
have a minimal effort, will deliver the products and fare the same to other
nation.This aides in expanding the fares.
Ø Foreign Firm’s Helps In
Increasing The Competition: Foreign firms have dependably concocted better
innovation, process, and advancements contrasting and the household firms. They
build up a fruition in which the local firms will perform better it makes due
in the market. (AZHAR* & K.N.MARIMUTHU**, 2015)
India announces new Foreign Direct
Investment Policy, 2017 – 2018
The ability to entrance large scale
Foreign Direct Investment (FDI) into India has been a key driver for
policy making by the Government. Prime Minister Modi is along the right track,
with India receiving FDI inflows worth USD 60.1 billion in 2016-17, which is
all-time greater. Therefore, the FDI policy of India is always closely watched
and carefully amended.
The Department of Industrial Policy
and Promotion (DIPP) had issued the updated and revised Foreign Direct
Investment Policy, 2017 – 2018 (FDI Policy 2017) on August 28,2017. The
FDI Policy 2017 incorporated various notifications issued by the Government of
India over the past year.
The key amendments brought by the FDI
Policy 2017 to the erstwhile FDI Policy of 2016 and their potential impact on
FDI in India:
Streamlined Procedure for Government Approval
Ø Abolition of the Foreign Investment Promotion Board
(FIPB): The Department of Economic Affairs has issued the most surprising
alteration to the FDI administration affirming the destruction of the FIPB (the
past government body approved to endorse recommendations for FDI requiring
government endorsement); and the presenting the ‘Foreign Investment
Facilitation Portal’ (FIFP), a managerial body to smoothen the way of FDI
candidates on June 5th 2017.
Ø Introduction of Competent Authorities: The FDI
Policy 2017 records and characterizes area particular authoritative
service/division as ‘Competent Authorities’ enabled to allow government
endorsement for FDI. Competent Authorities recorded in the FDI Policy 2017
incorporate the DIPP in regard of utilizations for FDI in the Single Brand,
Multi Brand and Food Product retail exchanging and the Department of Economic
Affairs of India for FDI in the money related administrations area.
Ø Introduction of ‘Standard Operating Procedure’
(SOP) to process FDI proposition: The DIPP had likewise issued the SOP which
gives the nitty gritty method and course of events for applications
additionally the rundown of ‘skillful experts’ for handling government
endorsements for FDI in India.
to existing provisions of the FDI Policy of 2016
The FDI Policy 2017 also incorporates
all Press Notes issued by the DIPP during the course of the year. Set out below
are the sector-specific significant amendments brought about in the last year:
Ø Manufacturing: To additionally change the assembling area (which permitted 100% FDI
under the programmed highway), 100% FDI under government endorsement course was
took into consideration retail exchanging, including through web based business
created in India, in regard of nourishment items made.
Ø Civil Aviation: In existing tasks the edge for FDI under the programmed course was
raised from 74% to 100%.
Ø Single Brand Retailing: Sourcing standards pertinent for FDI were unwinded and won’t be
material up to 3 (three) years from initiation of the business which implies
the opening of the primary store for elements undertaking single brand retail
exchanging of items having ‘condition of-workmanship’ and ‘forefront’
innovation and where nearby sourcing is unthinkable.
Ø Other Financial Services: The beforehand relevant capitalisation standards for non-keeping money
budgetary administrations organizations were broken down, with materialness of
sectoral laws and all other monetary part exercises by substances effectively
managed by money related area controllers fall under the 100% programmed course
of speculation. (Savani, 2017)
inflows to Major Sectors from Top Five Host Countries (in per cent) from
2011-12 to 2015-16(November) (Rupees in Crores)
Computer software and hardware
Drugs & pharmaceuticals
Petroleum and natural gas
Mauritius largest source of FDI in India, says RBI
According to a census by the Reserve
Bank, Mauritius was the largest source of foreign investment in India (21.8
percent share at market value), followed by the US and the UK. Singapore (19.7
percent) and Japan were the next two sources of foreign direct investment, said
the Census on Foreign Liabilities and Assets of Indian Direct Investment
Companies 2016-17, released by RBI.
Out of the 18,667 companies that participated
in the census, 17,020 had FDI/overseas direct investment in their balance
sheets in March 2017, 96% of the responding companies were unlisted in March
2017 and many of them had received only inward FDI. Further, over 80 per cent of the
15,169 companies that reported inward FDI were subsidiaries of foreign
companies (single foreign investor holding over 50 per cent of the total
From 3.6 a year ago, the ratio of market values of
inward to outward direct investment, increased to 4.3 in March 2017; equity
participation accounted for 94 per cent and 79 per cent shares in inward and
outward FDI, respectively.
Types of Routes
are two routes where India gets FDI:
route: Without the prior approval by Government or Reserve
Bank of India FDI is allowed by this route
Government route: By this route prior approval by government
is needed. The application needs to be made through Foreign Investment
Facilitation Portal, which will smoothen single window clearance of FDI
application under Approval Route. The application will be carried forward to
the respective ministries which will act on the application as per the standard
Few Sectors in which FDI is allowed in India
AGRICULTURE AND ANIMAL
% of Equity/FDI cap
Floriculture, Horticulture, and
cultivation of Vegetables Mushrooms under controlled conditions;
Development and Production of seeds
and planting material;
Animal Husbandry (including
breeding of dogs), Pisiculture, Aquaculture, Apiculture
Services related to agro and allied
term “under controlled conditions” means the following:
under controlled conditions for the classification of horticulture,
floriculture, mushrooms is the practice of cultivation wherein temperature, air
humidity, rainfall are controlled artificially.
Tea sector including tea
Olive oil tree plantations
Palm oil tree plantations
FDI in manufacturing sector is automatic route. Therefore, a manufacturer is
permitted to sell the products which are manufactured in India through
wholesale and/or retail, including through e-commerce, without Government
approval. There is change in FDI policy provisions on trading sector, 100% FDI
under Government approval route is allowed for retail trading, including
e-commerce, and also food products manufactured and/or produced in India.
% of Equity/FDI Cap
Defence Industry subject to Industrial
license under the Industries
(Development & Regulation) Act,
Manufacturing of small arms and
ammunition under the Arms Act, 1959
Automatic up to 49%
Government route beyond 49% wherever it
is likely to result in access to modern technology or for other reasons to be
Even during the
recession period India has managed to show a positive GDP growth and has been
one of the developing countries. Compare to the average growth rate of world
GDP India has performed very well. India acquires all the variables such as
fine infrastructure, potential markets, abundant labour, availability of
natural resources, and at last the economic and trades policies which favours
FDI. India is rated as the second-most favoured destination for FDI in the
world after China, As India has a large proportion of young population it is
expected that in future India would beat China with one of the fastest growing
economies. The government should formulate more policies which can attract more
foreign investment in manufacturing sector rather than service sector.
(2018, Jan 19). Retrieved from
AZHAR*, S., & K.N.MARIMUTHU**. (2015). AN
OVERVIEW OF FOREIGN DIRECT INVESTMENT IN INDIA . 14.
Chaturved, A. (2017). Consolidated FDI Policy
Circular of 2017. New Delhi.
Savani, K. (2017, september 6). Retrieved from