Foreign investment in India was the direct result of liberal trade policies undertaken and implemented by successive governments. The Government’s liberalization program aims to achieve rapid and substantial growth in the country’s economy as well as harmonious integration with the global economy. While foreign investment in India includes investments made by offshore companies in India, the opposite direction, the flow of foreign investment from India, is also spreading in the Indian economy. Foreign investment in India has created some remarkable opportunities in the country in terms of creating jobs and improving the country’s infrastructure.
Foreign investment in India has tremendous potential. Foreign investment in India, however, has its own share of benefits and disadvantages. Overseas investors must plan for and cope with adversity well in advance. Adversity and deal with it properly. Some of the barriers investors may face are bureaucratic troubles, infrastructure deficiencies, energy shortages, and sometimes political uncertainty. Despite these uncertainties, India represents a tremendous potential for global players to invest in the market. Many of the leading overseas brands have already invested while some companies have pipeline plans to invest in India.
The market potential for foreign investment in India
India is the fifth-largest economy in the world and has the third-highest GDP in Asia. India is among the few markets in the world that offer such high prospects for growth and gain in almost all sectors of the economy. A large skilled workforce is one factor that ensures that foreign investors get good returns on their investments. To succeed in the Indian market, foreign investors will have to correctly appreciate the opportunities and disadvantages offered by India’s markets.
The investor should make sure that they have a well-designed plan which is backed by some serious ideas resulting from inclusive research. Another opinion that companies will have to consider is that if they are thinking of short-term profit, then perhaps it will not be productive, but long-term renewal is guaranteed to the investor who has studied the market properly before investing money. Once all these factors are given due consideration, investors will not have to worry about the outcome of their investments.
Foreign Investment Policy in India
The Government has taken various liberal political decisions to make the whole process of foreign investment in India hassle-free. Some foreign investment policies include:
The Ministry of Industry has extended the scope of sectors eligible for foreign investment automatic approval.
2. Raise the upper limit of foreign investment in India to 74 percent from the previous 51 percent; in some cases, this has increased to 100 percent.
3. Indian companies will no longer need former clearance from the Reserve Bank of India, RBI for the internal conversion of foreign currencies or for issuance of shares to foreign investors.
4. The Government has amended the regulations on exchange control.
5. The ban on the use of foreign trade names/marks has been removed.
6. The corporate tax rate on foreign companies has been reduced from 65 percent to 55 percent by the Government in the 1994-95 annual budget.
7. The Government reduced the long-term capital gains rate for foreign companies to 20%
8. Under the Indian Income Tax Act, shipping earnings are exempt from corporate income tax for both foreign and domestic companies.
9. 100 percent of foreign investment flows are allowed in strategic sectors such as roads, ports, tunnels, highways, and ports, provided that the total investment in any of the sectors does not exceed ‘1500 crore’.
10. Any increase in the prescribed limit does not require permission from the Foreign Investment Promotion Board.
Automatic approval procedures for foreign investment in India
The FDI Approval Facility for India applies to 35 of the high priority sectors listed in Annex III of the New Industrial Policy Statement. This approval has allowed foreign investment up to 51% of foreign shares. The revised FDI policy encompasses more than three sectors in the mining industry that can obtain automatic approval for half the amount of foreign investment, and 13 other categories have been introduced for automatic FDI approval. These export units are required to operate in accordance with the export and import policy of the Government of India and to register under the Ministry of Commerce.
Foreign Investment Promotion Board
The Foreign Investment Promotion Board, established under the Industrial Policy and Promotion Department, is the only agency in India dealing with all matters relating to foreign direct investment and promotion of foreign investment in India. The Council is chaired by the Minister of Industry and administered by the Industrial Policy and Promotion Department, Government of India. The Board, towards the immediate clearance of proposals, made him through crucial negotiations and discussion with budding investors. The main functions of the Foreign Investment Promotion Board are:
Ensure the rapid clearance of proposals for foreign investment:
• Periodic review of the implementation of cleared proposals
• Regular review of FDI policies with relevant agencies including government and private bodies
• Carrying out investment promotion activities consisting of establishing contacts and inviting foreign companies to do business in India
• Identify sectors while keeping the national Internet in mind where investments can be searched aboard
• Carry out its activities to promote and facilitate foreign direct investment where appropriate
Relax in policies
The Government has relaxed some of the existing laws and introduced changes in some new laws and in some cases enacted to ensure better opportunities for foreign investment in India. His tax holidays have been extended for five years to include institutions involved in the development of infrastructure facilities. Foreign companies are allotted to start multimodal transport services in India even if they do not have a registered office in India. RBI allows 100% foreign investment in the construction of roads and bridges. Other measures include expanding items that can be freely imported into the list of public open licenses to include certain consumer goods and strengthening the scope of the private import license.
Finance Ministry
• Department of Disinvestment
• Department of Economic affairs
• Department of Expenditure
• Department of Revenue
• Expenditure Reforms Commission
• National Savings Institute
• Indian Investment Center
• India and the IMF
• Public Investment Board
• Foreign Investment
• Asian Development Bank
Foreign direct investment in India
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Foreign direct investment in India is a major source of monetary development for India. Foreign companies invest directly in fast-growing private Indian companies to reap the benefits of cheaper wages and the changing business environment in India. Economic liberalization began in India in the wake of the 1991 economic crisis, and since then, FDI has steadily increased in India, which later generated more than one job (10,000,000). According to “Financial Times”, in 2015 India transcended China and the United States as the primary destination for foreign direct investment. In the primary half of 2015, India attracted investment of $ 31,000,000,000 compared to $ 28,000,000,000 and $ 27,000,000,000 from China and the US respectively
Methods
There are two tracks through which India gets foreign direct investment.
1. Automatic route: In this way, foreign direct investment is permitted without the prior approval of the Government or the Reserve Bank of India.
2 – Government road: need to obtain the prior approval of the Government through this road. This application needs to be done through the Foreign Investment Facilitation Portal, which will facilitate a single window of FDI application under approval. The application will be forwarded to the relevant ministries which will act upon the request in accordance with the standard operating procedures. The Foreign Investment Promotion Board (FIPB), the agency responsible for overseeing this route, was abolished on 24 May 2017. The Committee held its last meeting on 17 April, which was the 245th meeting of the Council on 24 May 2017, and the Government of the Union abolished the Investment Promotion Board Foreigner. Henceforth, the work on FDI processing and government approval under the existing FDI policy is now the relevant ministries/departments in consultation with the Department for the Promotion of Industry and Internal Trade and the Ministry of Commerce, which will also issue standard operating procedures for processing applications and the Government’s decision. Under the current foreign direct investment policy
Government initiatives
The Government of India has studied the FDI policy to increase the flow of FDI. In 2014, the Government increased the ceiling on foreign investment from 26 percent to 49 percent in the insurance sector. The ‘Made in India’ initiative was launched in September 2014, under which FDI policy was liberalized in 25 sectors. As of April 2015, FDI inflows in India have increased by 48 percent since the launch of the “Made in India” initiative.
India was rated 15th in the world in 2013 in terms of FDI inflows, rising to ninth place in 2014 while India in 2015 became the top destination for FDI. The Department for the Advancement of Industry, Internal Trade and Investment in India has developed an Indian Investment Network which provides a database of all India projects from Indian promoters to promote and facilitate foreign investments.
Sectors
During the period 2014-16, India received most of its foreign direct investment from Mauritius, Singapore, the Netherlands, Japan, and the United States. On 25 September 2014, the Government of India launched the “Make in India” initiative, which issued a policy statement on 25 sectors, with convenient standards for each sector. The following are some of the main sectors of FDI.
Infrastructure
10% of India’s GDP is based on development activity. The Indian government invested $ 1,000,000,000,000 in infrastructure between 2012 and 2017. 40% of this $ 1,000,000,000,000 was to be funded by the private sector. Foreign direct investment under the road in the construction sector of cities and towns.
Automotive
FDI in the automotive sector increased by 89 percent between April 2014 and February 2015. India is the seventh-largest vehicle producer in the world with 25,500,000 vehicles per year. 100% foreign direct investment is allowed in this sector via the highway. Cars share 7% of GDP in India.
Pharmaceuticals
The Indian pharmaceutical market is the third-largest in size and the 13th largest in value. The Indian pharmaceutical industry is expected to grow at a CAGR of 20% from 2015 to 2020. 74% FDI is permitted in this sector.
service
Foreign direct investment in services increased to 46 percent in 2014-15. It is the US $ 1,880,000,000 in 2017. The sector includes banking, insurance, outsourcing, research and development, courier and technology testing. The maximum FDI in the insurance sector rose from 26 percent to 49 percent in 2014.
Railways
100% of foreign direct investment is allowed under the highway in most railway areas, other than operations, such as high-speed rail, railway electrification, passenger terminal, mass transit systems, etc. Mumbai-Ahemdabad high-speed corridor project is one of India’s largest railway project, others being CSTM-Panvel suburban corridor. So far, foreign investment in these projects is expected to reach over ₹ 90,000 (the US $ 13 billion).
RECOVERY OF MONEY
Chemicals
India’s chemical industry generated revenues of $ 155-160 billion in 2013. 100% foreign direct investment is allowed in the chemical sector under the highway. Except for hydrocyanic acid, phosgene, isocyanate, and its derivatives, the production license of all other chemicals in India is revoked. India’s share of the global specialty chemical industry is expected to rise from 2.8% in 2013 to 6-7% in 2023.
Textiles
Textiles is one of the major contributors to the export of India. Approximately 11% of India’s total exports are textiles. This sector attracted about $ 1,647,000,000 from April 2000 to May 2015. 100% FDI is allowed under the motorway. During 2013-14, FDI in the textile sector increased by 91%. The Indian textile business is expected to reach $ 141,000,000,000 by 2021.
Airlines
Foreigners are allowed to invest 100% in scheduled, regional or local air transport services.
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