Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) Policy

Foreign Direct Investment (FDI) Policy– The Indian government’s favourable policy regime and robust business environment has ensured that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.

Market size

According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflow in India stood at US$ 456.79 billion during April 2000 to December 2019, indicating that government’s effort to improve ease of doing business and relaxing FDI norms has yielded results.

FDI equity inflow in India stood at US$ 36.79 billion during April-December 2019. Data for 2019-20 indicates that the service sector attracted the highest FDI equity inflow of US$ 6.52 billion, followed by computer software and hardware at US$ 6.34 billion, telecommunications sector at US$ 4.29 billion and trading at US$ 3.52 billion.

During 2019-20, India received the maximum FDI equity inflow from Singapore (US$ 11.65 billion), followed by Mauritius (US$ 7.45 billion), the Netherlands (US$ 3.53 billion), Japan (US$ 2.80 billion) and the USA (US$ 2.79 billion).

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“, according to the Department for Promotion of Industry and Internal Trade (DPIIT). While the new FDI policy does not restrict markets, the policy ensures that all FDI investments by entities from countries that share a border with India will now require a clearance from the Centre.

Sector In India –FDI

Pharmaceuticals:

India is a prominent and rapidly growing presences in global pharmaceuticals. It is the largest provider of generic medicines globally, occupying a 20% share in global supply by volume, and also supplies 62% OF global demand for vaccines. India rank 3rd worldwide for production by volume and 10th by value, thereby accounting for around 10% of world’s production by volume and 1.5 % by value

Aviation 
India is the 5th largest market in terms of aircraft passengers (domestic and international) The Aviation sector in India currently contributes $72 bn to GDP.India aims to become the third-largest aviation market globally by 2020. Indian carriers plan to increase 11% Passenger traffic growth 15.90% Foreign Tourist Arrival growth 3.60 MMT Total freight traffic (MMT) 14.40% Domestic aircraft movement grow

Food Processing :

Worlds largest milk producing nation the processed food market is expected to grow to $ 543 bn by 2020 from $ 322 bn in 2016, at a CARG of 14.6%. also , by 2020, India food and retail market is projected to touch $ 482 bn, 32% in india’s food market 11.60% sharer in total employment 10.70% share in india exports  

Ports & Shipping

India is strategically locatetd on the world’s shipping routes with a coastline of approximately 7,517 km. maritime transport handles around 70% of india’s trading in value terms. The government has also introduces various fisical and non- fisical incentives for interprises that develop, maintain and operate portrs, inland waterways and shipbuilding in India 699.55 MT Cargo traffic at major ports (2018-19) 2.9% Cargo traffic growth 1,400 Indian fleet strength (no. of vessels – coastal & overseas as on Dec 2018) 1,451.2 MTPA Capacity (2018)

FDI Governments schems for start ups

  1. The Venture Capital Assistance Scheme: Ministry of Agriculture and Farmers Welfare Venture Capital Assistance is financial support in the form of an interest free loan provided by SFAC to qualifying projects to meet shortfall in the capital requirement for implementation of the project.
  2. Support for International Patent Protection in Electronics and & Information Technology (SIP-EIT): Ministry Of Electronics & Information Technology SIP-EIT is a scheme to provide financial support to MSMEs and Technology Startup units for international patent filing to encourage innovation and recognize the value and capabilities of global IP along with capturing growth opportunities in ICTE sector 
  3. Stand-Up India: Small Industries Development Bank of India (SIDBI) Stand Up India Scheme facilitate bank loans between 10 lakh and 1 crore to atleast one scheduled caste (SC) or Scehduled Tribe, borrower and atleast one women per bank branch for setting up a greenfield enterprise. This enterprise may be in manufacturing, services or the trading sector. In case of non-individual enterprises at least 51% of the shareholding and controlling stake should be held by either an SC/ST or Woman entrepreneur. 
  4. Single Point Registration Scheme : Ministry of Micro Small & Medium Enterprises The Government is the single largest buyer of a variety of goods. With a view to increase the share of purchases from the small-scale sector

Investments/ developments

Some of the significant FDI announcements made recently are as follows:

  • In May 2020, private equity (PE) firm Vista Equity Partners announced investment of Rs 11,367 crore (US$ 1.61 billion) in Jio Platforms for a 2.32 per cent stake.
  • In May 2020, PE firm Silver Lake announced investment of Rs 5,655.75 crore (US$ 802.35 million) into Jio Platforms for 1.15 per cent stake.
  • In April 2020, Facebook, Inc. announced an investment of Rs 43,574 crore (US$ 6.23 billion) into Jio Platforms for 9.99 per cent stake.
  • In January 2020, Amazon India announced investment of US$ 1 billion for digitising small and medium businesses and creating one million jobs by 2025.
  • In January 2020, Mastercard announced its plans to invest up to US$ 1 billion in India over the next five years to double its research and development effort in the Indian market.
  • In October 2019, French oil and gas giant, Total S.A., acquired 37.4 per cent stake in Adani Gas Ltd for Rs 5,662 crore (US$ 810 million), making it the largest FDI in India’s city gas distribution (CGD) sector.
  • In August 2019, Reliance Industries (RIL) announced one of India’s biggest FDI deals with Saudi Aramco to buy a 20 per cent stake in Reliance’s oil-to-chemicals (OTC) business at an enterprise value of US$ 75 billion.

Government Initiatives

  • In May 2020, government increased FDI in Defence manufacturing under the automatic route from 49 per cent to 74 per cent.
  • In April 2020, government amended existing consolidated FDI policy for restricting opportunistic takeovers or acquisition of Indian companies from neighboring nations.
  • In March 2020, government permitted non-resident Indians (NRIs) to acquire up to 100 per cent stake in Air India.
  • In December 2019, government permitted 26 per cent FDI in digital sectors.
  • In August 2019, government permitted 100 per cent FDI under the automatic route in coal mining for open sale (as well as in developing allied infrastructure like washeries).
  • In Union Budget 2019-20, the government of India proposed opening FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders.
  • 100 per cent FDI is permitted in insurance intermediaries.
  • As of February 2019, the government of India has been working on a road map to achieve its goal of US$ 100 billion worth of FDI inflow.
  • In February 2019, the government of India released the Draft National E-Commerce Policy to encourage FDI in the marketplace model of E-commerce. Further, it stated that the FDI policy for E-commerce sector was developed to ensure a level playing field for all participants.

Government of India had been planning to consider 100 per cent FDI in Insurance intermediaries in India to give a boost to the sector and attract more funds.

In December 2018, the government of India revisedforiegn direct investment FDI rules related to E-commerce. As per the revised rules, 100 per cent Foreign Direct Investment FDI was allowed in the marketplace-based model of E-commerce. Also, sales of any vendor through an E-commerce market place entity or its group companies was limited to 25 per cent of the total sales of such vendor.

Road ahead

India is going to be the most attractive emerging market for global partners (GP) investment for the coming 12 months as per a recent market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA).

Annual FDI inflow in the country is expected to rise to US$ 75 billion over the next five years as per a report by UBS.

The government of India is aiming to achieve US$ 100 billion worth of Foreign Direct Investment FDI inflow in the next two years.

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