FDI in India

Foreign direct investment in India has grown immensely in the last 5 years due to strong support from the Union Government. This growth has in turn helped with the progress of the national economy. Recently, the South-East Asian country has strived hard to draw FDI from the leading investors of the world.

financial collaborations capital markets via euro issues preferential allotments or private equity joint ventures

In the last few years the following sectors have attracted the maximum FDI as per a fact sheet brought out by the Department of Industrial Policy and Promotion:

Services Automobile Computer hardware and software Power Telecommunications Metallurgical industries Real estate and housing Petroleum and natural gas Construction Chemicals with the exception of fertilizers

The FDI laws forbid investment in the following sectors:

arms coal nuclear mining railway

Impact of FDI on Indian Economy

India has recently liberalized its FDI policy and decided to allow 100 percent international investment in the single brand retail segment. Reforms to industrial policies have brought about significant reductions to requirements regarding to licensing and done away with restrictions related to expansion and made it easy to use international technology. The real estate sector has performed well in recent times and much of the credit in this instance can be given to the relaxed FDI regulations and the properly performing economy. The Indian government has been trying hard to do away with the FDI caps for majority of the sectors but there are still critical areas like retailing and insurance where much thought needs to be given before more FDI is allowed. India is the 3rd biggest economy of the world in terms of purchasing power parity and is thus a popular destination when it comes to FDI. Following are the major economic sectors where it can attract investment:

telecommunications apparels information technology pharmaceuticals auto components jewelry chemicals

Foreign investments in India have increased of late but the strict FDI policies have impeded the possible growth in this sector. India is however set to become one of the major recipients of FDI in the Asia-Pacific region because of the economic reforms for increasing foreign investment and the deregulation of this important sector. India has technical expertise and skilled managers and a growing middle class market of more than 300 million and this represents an attractive market.
FDI Inflows in India

The table provides a list of countries that are the leading foreign direct investors for India:
Country Mauritius Approximate percentage of inflow 42 Approximate inflow in million US dollars 50164

Singapore USA UK Netherlands

9 7 5 4

11275 8914 6158 4968

As the table shows, within 2000 and 2010 India has attracted FDI worth 178 billion dollars. Majority of the foreign direct investment comes through Mauritius as it enjoys several tax advantages, which works well for the international investors. India and Mauritius have also signed a tax avoidance treaty and the African country provides several capital gains tax privileges to companies that operate from its territory. This effectively makes it a preferred medium as there is no taxation when it comes to FDI.
How FDI is calculated?

Foreign direct investment can be defined, according to national accounting principles, as the net investment inflow that is necessary for acquiring long term management interest in an organization that is operating in a different country. Long term management interest can be calculated as at least 10% of the voting stock of a company. It is the aggregate of equity capital and other long term and short term capital that are reflected in the balance of payments. A foreign direct investor normally takes part in the following areas of an organizations operations:

management technology transfer joint ventures expertise transfer

There are two major types of FDI inward FDI and outward FDI. Together these values are used to calculate the stock of foreign direct investment and the net FDI inflow. Direct investment, however, does not include buying shares. FDI can be cited as an example of international factor movement.
Union Government FDI Measures

The Union Government has allowed 100 percent FDI in cash and carry wholesale trade sector apart from the single brand retail market. It has also opted to allow 51% FDI in the multi brand retail segment. However, this will be implemented in accordance to

certain predetermined conditions. At present, it is trying to come to a consensus on this matter with the various state governments.
FDI Equity Inflows from 2000-2012 S. Nos Financial Year (April March) Amount of FDI Inflows In crores 10733 18654 12871 10064 14653 24584 56390 98642 142829 123120 88520 ` In US$ million 2463 4065 2705 2188 3219 5540 12492 24575 31396 25834 19427 26192 ( + ) 65 % ( - ) 33 % ( - ) 19 % ( + ) 47 % ( + ) 72 % (+ )125 % ( + ) 97 % ( + ) 28 % ( - ) 18 % ( - ) 25 % %age growth over previous year (in terms of US $)

FINANCIAL YEARS 2000-2012 1 2 3 4 5 6 7 8 9 10 11 12 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 * 2009-10 # 2010-11 #

2011-12 # (April - January 122307 2012) (from April 723367

CUMULATIVE TOTAL 2000 to January 2012)

160096

Note: (i) including amount remitted through RBIs-NRI Schemes (2000-2002). (ii) FEDAI (Foreign Exchange Dealers Association of India) conversion rate from rupees to US dollar applied, on the basis of monthly average rate provided by RBI (DEAP), Mumbai. (iii) Variation in equity inflows reported in above Table II-A & II-B for 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 is due to difference in reporting of inflows by RBI in their monthly report to DIPP & monthly RBI bulletin. (IV) # Figures for the years 2009-10, 2010-11 & 2011-12 are provisional subject to reconciliation with RBI.

(V) * An additional amount of US$ 4,035 million pertaining to the year 2008-09, since reported by RBI, has been included in FDI data base from February 2012.