Growth in FDI

Foreign Direct Investment (FDI) growth in India

Singapore emerged as the largest source of FDI in India during the last fiscal with $14.67 billion investments followed by Mauritius ($8.24 billion).

Foreign Direct Investment (FDI) growth in India

Top Current Affairs 30th May 2020

Source | Economic Times


GS Paper II: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.



Foreign Direct Investment

Key Takeaways

  • Foreign Direct Investment (FDI) into India rose 13% to a record $49.97 billion in FY2019-20 from $44.36 billion a year earlier.
  • Singapore emerged as the largest source of FDI in India during the last fiscal with $14.67 billion investments followed by Mauritius ($8.24 billion).

Read More: Financial Stability and Development Council (FSDC)


Context: According to official data released by the Department for Promotion of Industry and Internal Trade (DPIIT), Foreign direct investment (FDI) in India grew by 13% to a record of $49.97 billion in the 2019-20 financial year.

Key Details about Growth in Foreign Direct Investment (FDI)

  • Foreign Direct Investment (FDI) into India rose 13% to a record $49.97 billion in FY2019-20 from $44.36 billion a year earlier.
  • While the FDI through FIPB route / RBI’s Automatic Route / Acquisition Route rose 13% on year, total FDI that also includes equity capital of unincorporated bodies, reinvested earnings and other capital was up 18% on year to $73.45 billion, more than double from $36.04 billion in 2013-14.
  • Sectors which attracted maximum foreign inflows during 2019-20 include:
    • Services ($7.85 billion)
    • Computer software and hardware ($7.67 billion)
    • Telecommunications ($4.44 billion)
    • Trading ($4.57 billion)
    • Automobile ($2.82 billion)
    • Construction ($2 billion)
    • Chemicals ($1 billion)
  • Singapore emerged as the largest source of FDI in India during the last fiscal with $14.67 billion investments followed by Mauritius ($8.24 billion).
  • Among states, Maharashtra garnered the highest share of FDI at 30% with investments clocking $7.26 billion.
  • Karnataka and Delhi followed with 18% and 17% share, respectively.

Also Read: 9 Latest RBI Measures to Strengthen Economy in 2020


What you need to know about Foreign Direct Investment in India?

Foreign direct investment (FDI) in India is a major monetary source for economic development in India. Foreign companies invest directly in fast growing private Indian businesses to take benefits of cheaper wages and changing business environment of India.

Background

  • Economic liberalisation 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.
  • In 2015, India overtook China and the United States as the top destination for the Foreign Direct Investment.
  • In first half of the 2015, India attracted investment of $31 billion compared to $28 billion and $27 billion of China and the US respectively.
  • 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.”
  • 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.
  • 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.


Also Read: Special Liquidity Scheme for NBFCs, HFCs and MFIs


Routes for FDI in India

There are two routes by which India gets Foreign Direct Investment (FDI).

  1. Automatic route: By this route FDI is allowed without prior approval by Government or Reserve Bank of India.
  2. 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.
    • Foreign Investment Promotion Board (FIPB) which was the responsible agency to oversee this route was abolished on May 24, 2017.
    • Henceforth, the work relating to processing of applications for FDI and approval of the Government thereon under the extant FDI Policy and FEMA, shall now be handled by the concerned Ministries/Departments in consultation with the Department for Promotion of Industry and Internal Trade(DPIIT) , Ministry of Commerce.

Read More: COVID-19 Economic Stimulus Package | Fifth Portion


Major Sectors under Foreign Direct Investment

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.

S. No.SECTORSFOREIGN DIRECT INVESTMENT (FDI) ROUTE
1.INFRASTRUCTURE100% FDI under automatic route.
2.AUTOMOTIVE100% FDI under automatic route. (India is 7th largest producer of vehicles in the world with 25.5 million vehicles annually.)
3.PHARMACEUTICALS74% FDI is permitted under automatic route. (Indian pharmaceutical market is 3rd largest in terms of volume and 13th largest in terms of value.)
4.SERVICESFDI limit in insurance sector was raised from 26% to 49% in 2014.
5.RAILWAYS100% FDI is allowed under automatic route in most of areas of railway, other than the operations, like High speed train, railway electrification, passenger terminal, mass rapid transport systems etc.
6.CHEMICALS100% FDI is allowed in Chemical sector under automatic route. Except Hydrocynic acid, Phosgene, Isocynates and their derivatives, production of all other chemicals is de-licensed in India.
7.TEXTILE100% FDI is allowed under automatic route. (Nearly 11% of India’s total export is textile.)
8.AIRLINESForeigner investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100%.


Read More: COVID-19 Stimulus Package | 4th Portion announced


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