Foreign Direct Investment (FDI) in India

Foreign investment is a strategic instrument of development policy. It plays an important role in the long-term economic development of a country by augmenting availability of capital, enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity, generating new employment opportunities and boosting exports. In the wake of economic liberalisation policy initiated in 1991, the Government of India has taken several measures to encourage foreign investment, both direct and portfolio, in almost all sectors of the economy. However, the emphasis has been on foreign direct investment (FDI) inflows in the development of infrastructure, technological upgradation of industry and setting up Special Economic Zones (SEZs). With a vast reservoir of skilled and cost-effective manpower, India is now recognised as one of the most attractive investment destinations by reputed international rating organisations. The World Investment Prospects Survey 2010-12 report by the United Nations Conference on Trade and Development (UNCTAD) ranked India as the second most attractive FDI destination for the year 2010 (China was ranked number one and Brazil number three). In spite of the fact that India is strategically located with access to a vast domestic and South Asian market, its share in worlds total flow of direct/portfolio investment to developing countries is dismally low. China, Singapore, Indonesia, Philippines, and Thailand attract greater amounts of foreign investment than India. With a view to increase access to Indian capital markets, Qualified Foreign Investors (QFIs) were allowed to directly invest in the Indian equity market in January 2012. Furthermore, the Union Finance Minister in his 2012-13 Budget allowed QFIs to access Indian Corporate Bond market. Under the current policy regime, there are three broad entry options for foreign direct investors: (a) in a few sectors, FDI is not permitted (negative list), (b) in another small category of sectors, foreign investment is permitted only till a specified level of foreign equity participation and (c) in all other sectors, foreign investment up to 100 percent of equity participation is allowed. The third category has two subsets -- one consisting of sectors where automatic approval is granted for FDI (often foreign equity participation less than 100 percent) and the other consisting of sectors where prior approval from the Foreign Investment Approval Board (FIPB) is required. The present book deals with almost all aspects of FDI in India. It particularly focuses on current policies, conditions and procedures for FDI inflows into India.