FDI in India: Nature of Reforms

FDI in India: Nature of Reforms

Question : There have been changes in FDI norms in recent times. What is FDI? What is the nature of reform measures undertaken with respect to FDI?

What is FDI?

Economic development during the past two decades is based on FDI which has been a vital non-debt financial force in relation to economic upsurge in the nation

Foreign Direct Investment is investment made to acquire long-lasting interest in enterprises operating outside investor’s economy

FDI in India is allowed across a wide range of industries and relentless influx the same reflects the investor confidence in the Indian growth story

Nature of Reforms

- There was uninterrupted flow of FDI in the nation as Indian government contributed to a conducive trade atmosphere

- Effective business policy measures are in place and easing out of restrictions in sectors like power exchanges, stock exchanges, defence, telecom and PSU oil refineries

- Union Cabinet has also given approval to review of FDI policy in investment by NRIs, PIOs and OCIs

- Government has also taken numerous reform measures from policy corrections to massive economic reforms

- FDI policy was reviewed in defence and railway sectors as well

- Government has taken time to ease FDI in rail and defence production

- DIPP stated that CCEA has approved FDI cap of 49 percent in insurance against 26% till then

- Cabinet notes for railways and defence were under final consultative process

- FDI limit in the sensitive defence sector rose from 26% to 49%

- Control in JV for manufacturing of defence equipment will be in Indian control

- Limit is composite in nature and ensures control of the domestic industry in a nation where 70% of military hardware is imported

Limit includes foreign investment in terms of :-

- Foreign portfolio investment,

- Foreign institutional investment,

- Qualified foreign investment,

- Foreign venture capital investment

- Non-resident investment

- FDI norms were eased for the Indian Railways

- DIPP has proposed 100 percent FDI in sectors such as high speed train systems, suburban corridors and dedicated freight line projects that are implemented in PPP mode

- Union Cabinet has also cleared proposal for allowing 100% FDI in railway infrastructure, excluding operations

- Foreign firms can also create the network and supply trains for bullet trains

- FDI liberalisation will help in modernisation and expansion of railways

- FDI cap in insurance sector rose from 26 percent to 49 percent

- FDI inflows in the sector of services grew by 46% to USD 3.25 billion in 2014-2015

- Services sector included banking insurance, outsourcing, research and development, courier and technology testing has received FDI close to USD 2.22 billion in 2013-2014

- Government has announced numerous steps such as fixing guidelines for approvals to enhance ease of doing business in the nation and attracting domestic and foreign investments

Facts and Stats

- Services has contributed around close to 60% to India’s GDP; according to DIPP data, total foreign inflow in 2014-2015 in the services sector was low compared to USD 4.83 billion in 2012-2013

- This is in line with growth in FDI in important sectors such as services, overall foreign inflows in the nation rose by 27% to USD 30.93 billion in the previous financial year

- Amount was USD 24.29 billion in 2013-2014

- Foreign inflows have reached USD 25.52 billion in April-January 2014-2015 up 36 percent Y-O-Y from USD 18.74 billion in the previous fiscal as per DIPP data

- Top 5 countries giving maximum FDI to Indian include Mauritius followed by Singapore, the Netherlands, Japan and the US during April-January 2014-15 period

- Deals of around USD 3.4 billion across 119 transactions were framed in 2015 as against 2014

- Foreign investments are considered vital for India as it requires USD 1 trillion in the 12th 5 Year Plan
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