Foreign Direct Investment (FDI) in India
Foreign direct investment is an investment that is made to serve the business interests of investor in a company, which is in a different nation different from the investor's country of origin.
Foreign direct investment (FDI) in India has played e very important role in developing the Indian economy. FDI in India has - in many ways - enabled India to achieve a certain degree of financial growth, stability and financial development. It has allowed India to focus on areas that needed economic attention, and address various issues that continue to challenge the country.
FDI in India has increased over a period of time due to the efforts been made by the Indian government. The increased flow of FDI in India has given major boost to the country's economy and hence steps should be taken to make sure that the flow of FDI in India continues to grow.
India has always sought to attract FDI from major investors of the world. In 1998 and 1999, the Indian national government declared a number of reforms designed to encourage FDI & present a favorable scenario for the investors.
FDI investments are permitted through private equity or preferential allotments, financial collaborations, through capital markets in form of Euro issues, and in joint ventures. FDI is not permitted in the nuclear, railway, arms, coal and lignite or mining industries.
Numbers of projects have been announced in areas like distribution and transmission, electricity generation and the development of roads and highways, with opportunities for foreign investors.
The Indian national government has also provided permission to FDIs to provide up to 100% of the financing needed for the construction of bridges and tunnels, with a limit on foreign equity of INR 1,500 crores [approximately $352.5m]
Presently, FDI is allowed in financial services, including the growing credit card business. These services also include the non-banking financial services sector. Foreign investors are allowed to buy up to 40% of equity in private banks, on a condition that these banks must be multilateral financial organizations. Up to 45% of shares of companies in global mobile personal communication by satellite services [GMPCSS] sector can also be purchased.
Advantages of FDI in India:
In the early 1990s, Government of India made several changes in the economic policy of the country. This helped in the liberalization & deregulation of the Indian economy while also opening the country's markets to foreign direct investment.
Due to this, large amounts of foreign direct investment came into India through international companies, non- resident Indians, and various other foreign investors. This in turn boosted the economic growth of India.
Major advantages of FDI in India have been in terms of -
- Increased capital flow.
- Improved technology.
- Management expertise.
- Access to the international markets.
Amount of foreign direct investment in India
The total amount of FDI in India was around US$ 42.3 billion in year 2001. In 2002 this figure became US$ 54.1 billion; in 2003 this figure was US$ 75.4 billion, while in 2004 the figure increased to US$ 113 billion. This indicates that the flow of foreign direct investment in India has rapidly grown over the last few years. Different forms of foreign capital flowing into India include investments in commercial banks of India, NRI deposits and investments in country's debt & stock markets.
FDI in major sectors in India
Major sectors of the Indian economy which have benefited from FDI in India are -
- Financial sector (Banking and Non-Banking).
- Insurance
- Telecommunication
- Hospitality and tourism
- Pharmaceuticals
- Software and Information Technology
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