Foreign Direct Investment (FDI) in India is a key driver of economic growth. The blog provides insights into India's FDI policies, sectors, with pros and cons
Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI) refers to the investment made by foreign entities or individuals in a country’s businesses and assets, typically for the purpose of establishing a lasting interest or control in those enterprises. FDI plays a vital role in the global economy by fostering economic growth, creating jobs, transferring technology and expertise, and promoting international trade and cooperation. In India, FDI has been encouraged through liberalized policies, making it an attractive destination for foreign investors across various sectors such as retail, manufacturing, and technology.
Foreign Direct Investment (FDI) in India – Latest update
Foreign direct investment (FDI) in India has been rising recently, attracting a record $83.57 billion in FDI in FY 2021-22. This was a 20% increase over the previous year. The top sectors for FDI inflows in FY 2021-22 were the services sector (54%), followed by the manufacturing sector (22%) and the computer software and hardware sector (11%). The top countries for FDI inflows in FY 2021-22 were Singapore (28%), the United States (19%), and Mauritius (16%).
FDI in India
- Foreign direct investment (FDI) is an investment made by a company or individual in one country into business interests in another country. The investment can be in equity, debt, or a combination of both.
- FDI is an important source of capital for developing countries, as it can help to create jobs, spur economic growth, and transfer technology and skills.
- India has a liberal FDI regime and allows FDI in almost all sectors of the economy, except for a few sensitive sectors such as defence and atomic energy.
FDI Routes in India
There are two main routes for FDI in India:
- Automatic route: Under the automatic route, FDI is permitted up to 100% without prior government approval. This route is available for most sectors, except for a few sensitive sectors where FDI is subject to government approval.
- Government approval route: Under the government approval route, FDI requires prior approval from the government. This route is typically used for FDI in sensitive sectors, such as defence and atomic energy.
Types of FDI
There are two main types of FDI:
- Equity FDI: Equity FDI is an investment in the form of equity shares, preference shares, or convertible debt.
- Debt FDI: Debt FDI is an investment in the form of loans and advances.
Procedures for Investment Under Government Route
The following are the procedures for investment under the government route in India:
- Submit an application to the Foreign Investment Promotion Board (FIPB): The application should include information about the company, the proposed investment, and the sector in which the investment is being made.
- The FIPB will evaluate the application and make a recommendation to the government.
- The government will then decide whether to approve or reject the application.
The company will be issued a Foreign Investment Promotion Board (FIPB) approval letter if the application is approved. The company will then need to obtain all other necessary approvals and licenses from the relevant authorities.
Government initiatives
The Indian government has taken a number of initiatives to attract FDI, including:
- Liberalising the FDI regime: The government has liberalised the FDI regime by allowing FDI in most sectors of the economy, except for a few sensitive sectors such as defence and atomic energy.
- Simplifying the FDI approval process: The government has simplified the FDI approval process by introducing the automatic route for FDI in most sectors.
- Providing incentives to FDI: The government provides a number of incentives to FDI, such as tax breaks, land subsidies, and infrastructure support.
New FDI Policy
The Indian government announced a new FDI policy in 2020. The new policy aims to make India a more attractive destination for FDI and to promote economic growth.
The new policy includes a number of measures to attract FDI, such as:
- Allowing FDI in more sectors: The new policy allows FDI in more sectors, such as defence and atomic energy.
- Simplifying the FDI approval process: The new policy further simplifies the FDI approval process by introducing a single window clearance system for FDI in most sectors.
- Providing more incentives to FDI: The new policy provides more incentives to FDI, such as tax breaks and land subsidies.
The new FDI policy is expected to boost FDI inflows into India and promote economic growth.
Coronavirus Pandemic Impact
- The coronavirus pandemic has had a significant impact on the global economy, including the Indian economy. FDI inflows into India declined by 13% in FY 2020-21, from $81.97 billion in FY 2019-20 to $71.42 billion.
- The decline in FDI inflows was due to a number of factors, including the global economic slowdown, the disruption of supply chains, and the uncertainty created by the pandemic.
- However, FDI inflows into India recovered in FY 2021-22, increasing by 20% to $83.57 billion. This was due to a number of factors, including the government’s efforts to attract FDI, the recovery of the global economy, and the increasing attractiveness of India as an investment destination. All the New company formation application were impacted during pandemic!
List of Prohibited Sectors
The following sectors are prohibited from FDI in India:
- Defence
- Atomic energy
- Space
- Railway operations
- Lottery
- Gambling
- Betting
- Chit funds
- Nidhi companies
Benefits of FDI
FDI offers a number of benefits to India, including:
- Economic growth: FDI can help to boost economic growth by creating jobs, increasing investment, and transferring technology and skills.
- Employment creation: FDI can help to create jobs by leading to the establishment of new businesses and the expansion of existing businesses.
- Technology transfer: FDI can help to transfer technology and skills to India, which can help to improve productivity and competitiveness.
- Export growth: FDI can help to increase exports by leading to the establishment of new export-oriented businesses and the expansion of existing export-oriented businesses. Secure your business future and make pvt ltd company registration with our expert guidance!
Government Measures to Increase FDI in India
The Indian government has taken a number of measures to increase FDI in India, including:
- Liberalising the FDI regime: The government has liberalised the FDI regime by allowing FDI in most sectors of the economy, except for a few sensitive sectors such as defence and atomic energy.
- Simplifying the FDI approval process: The government has simplified the FDI approval process by introducing the automatic route for FDI in most sectors.
- Providing incentives to FDI: The government provides a number of incentives to FDI, such as tax breaks, land subsidies, and infrastructure support.
- Promoting India as an investment destination: The government is promoting India as an investment destination through various campaigns and initiatives.
Government Measures to increase FDI in India during the COVID-19 pandemic
In addition to the above measures, the Indian government also took a number of measures to increase FDI during the COVID-19 pandemic, such as:
- Fast-tracking FDI approvals: The government fast-tracked the approval process for FDI in order to attract more foreign investment.
- Providing additional incentives to FDI in certain sectors: The government provided additional incentives to FDI in certain sectors, such as healthcare and manufacturing.
- Launching a new FDI policy: The government launched a new FDI policy in 2020, which aims to make India a more attractive destination for FDI and to promote economic growth.
Impact of Government Measures
The government’s measures to increase FDI have had a positive impact. FDI inflows into India increased by 20% in FY 2021-22 to $83.57 billion. This was the highest level of FDI inflow into India ever.
Conclusion
The Indian government is committed to attracting FDI and has taken a number of steps to liberalise the FDI regime and simplify the FDI approval process. The government’s measures have had a positive impact, and FDI inflows into India have increased significantly in recent years.
Foreign Direct Investment (FDI) FAQs
Which is the largest source of foreign direct investment in India?
Singapore is the largest source of foreign direct investment in India.
Why is India popular for FDI?
India is popular for FDI because of its large and growing economy, its young and skilled workforce, and its liberal FDI regime.
Which country has the lowest FDI?
North Korea has the lowest FDI in the world.
What are the challenges of FDI?
The challenges of FDI include job displacement, the loss of control over domestic resources, and environmental damage.
What is the future of FDI in India?
The future of FDI in India is bright. India is expected to attract more FDI in the coming years due to its large and growing economy, its young and skilled workforce, and its liberal FDI regime.
