The Chronicles of FDI in India

By: Nikita Paunikar

The Government of India has been recently making many announcements regarding FDI in the country. Amidst the pandemic, India has been attracting investments from foreign investors. Even when the Global economy is facing massive slowdown, India has attracted more than US$ 20 billion between the month of April, 2020 and July, 2020.

To understand this better, let’s dive in.
According to the World Bank, India Ranks 63rd in Ease of Doing Business and 1st in green field FDI rankings. Total FDI Inflow in India from April 2000 to March 2020 was US$ 680,919 million. Out of which Equity Inflows were US$ 469,998 million (Rs. 2,731,911).

For financial year 2020, FDI equity inflows in India, were maximum in services sector. It contributed Rs. 554.29 billion. This sector includes sub-sectors like finance, banking, insurance and other nonfinancial sectors like research and development, testing and analysis. Also, 56% of foreign registered companies were in this sector. It was followed by computer hardware and software, trading, telecommunications, hotel and tourism with the contribution of Rs. 542.5 billion, Rs. 324.06 billion, Rs. 309.4 billion, and Rs. 210.6 billion respectively.

States with highest FDI inflows were Maharashtra, Karnataka, Delhi, Gujarat, and Jharkhand. These states attracted US$ 52,073 million, US$ 30,746 million, US$ 28,487 million, US$ 18,964 million, and US$ 13,208 million respectively in 2019-2020.

The top five countries for FDI Inflows are Singapore, Mauritius, USA, Japan, and Netherlands. Other major inflows come from UK, South Korea, Cayman Islands, UAE, and Germany.

Looking sector wise, top five sectors in FDI are Manufacturing, Financial Services, Communication Services, Retail and Wholesale trade, Computer services.

You must have read the news about the Indian government, trying to reduce Chinese imports in the country. Well, not just imports but FDI from China were also taken care of. The finance ministry made changes in the FDI rules under FEMA (Foreign Exchange management Act, 1999) Law to
prevent opportunistic takeovers of domestic firms amid COVID-19 pandemic. The notification released by the Department of Promotion of Industry and Internal trade (DPIIT) read “Provided that the entity of the country which shares the land border with India or the beneficial owner of the investments into India, who is situated in or is a citizen of any such country, shall invest only with government approval”

Such ad-hoc policy changes would not have required if we had a FDI regulatory Body. Countries like USA already have one- called Committee on Foreign Investments in United States (CFIUS). It is an inter-agency committee which reviews and acts against national security concerns
regarding foreign investors. It acts in a broad manner without any sector constraints and the rules are continuously evolving depending on the political environment of the country. Such kind of controlling
body will provide the government of India the proper organization and structure to follow while preserving the national integrity.

Recently, many reforms have been made in FDI by Government of India. Few of them are – In May 2020, FDI in defence and manufacturing were increased to 74% from 49%. Government permitted NRIs to acquire up to 100% stakes in air India. It permitted 26% FDI in digital sector and 100% FDI in coal mining through automatic route for open sale. It has permitted 100% FDI in insurance intermediaries. In February 2019, it released Draft National E-Commerce Policy to encourage FDI in E-commerce Market. In budget 2019-2020, it has proposed opening FDIs in Aviation and Media.

Few FDIs that grabbed our attention recently were-

Jio platforms Ltd sold 25.24% of its stake at Rs. 1.52 Trillion ($ 21.57 Billion) to many global investors in separate deals involving industry giants like Facebook, Silver Lake, Vista, General Atlantic, Mubadala, Abu Dhabi Investment Authority, TPG capital, L. Catterton, Public Investment Fund, Intel Capital, Qualcomm ventures and Google. All these deals happened within the span of 1.5 months i.e. from April 23, 2020 to July 16, 2020 which was quite spectacular.

· In May 2020, Philips announced to invest Rs. 250-300 Crores ($ 35.47 – $ 42.56 million) to increase its Research and Development facilities in India.
· Mastercard Announced to invest $ 1 billion over next five years in Indian markets.
· Amazon India announced that it will invest US$ 1 Billion in India for digitising small and medium businesses by 2025.
· Total S.A., a French oil and gas giant, acquired 37.4% stake in Adani gas limited for Rs. 5,662 Crores (US$ 810 Million). This was the largest FDI in India’s city gas distribution (CGD) sector.
· Saudi Aramco entered into a deal with Reliance Industries. It is going to buy 20% stakes in reliance’s oil-to-chemicals business at an enterprise value of USD 75 Billion.

Way forward for the FDIs in India

As India is one of the world’s leading Investment Country, to provide right opportunities for the investors across the globe, India Investment Grid (IIG) is initiated by Department of policy and promotion (DIPP) and Ministry of commerce and industry, Government of India and Invest India. It is
an interactive platform where potential investors can find new projects across the countries to invest in. It covers over 25 sectors and 69 sub-sectors. Some of the featured sectors are water and sanitation,
Social Infrastructure, Commercial Infrastructure, Energy, etc. There are more than 4000 Projects spread across 580 districts which carries an investment opportunity of $ 163.68 bn.

Government of India has also been working up a plan to increase FDI inflows up to US$ 100 billion. According to a survey conducted by Emerging Market Private Equity Association (EMPEA), India is the most attractive market for Global partners. As per the reports released by UBS, India FDIs will rise up to US$ 75 billion over next five years.

Along with all these goodies in our basket, we need a strong regulatory structure and an open mind to rise and shine further.

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