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Useful Notes on Foreign Direct Investment in India

December 15, 2018 0 Comment

Publication of FDI Statistics in India:

There are two official sources which publish FDI statistics in India

(à) Reserve Bank of India (RBI), and

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(b) Secretariat for Industrial Assistance (SIA). The RBI presents Balance of Payment statement which records the FDI flows on a net basis, in the RBI Bulletin and its Annual Report on monthly and annual basis, respectively. SIA reports FDI inflows in both approval and actual basis in the monthly SIA’s Newsletter and SIA statistics.

Approval of FDI:

In India FDI can be approved either through the Automatic Route under powers delegated to the reserve Bank of India (RSI), or by the Government as the case may be. The government approves only when it is recommended by the Foreign Investment Promotion Board (FIPB).

The Foreign Investment Promo­tion Board was set up in 1991 in the Prime Minister’s office to provide a single window clearance to investment proposals and facilitate investments in India by the international investors.

FIPB consists of the Secretary, Department of Industrial Policy and Promotion (Ministry of Industry) with the Union Finance secretary, Commerce secretary, and other key secretaries of government are its members

FDI in India Past to Present:

The history of FDI inflows in India was not much bright before 1985. Compared to the size of the Indian economy, there was very little foreign investment upto 1985. The period between 1985 to 1991 saw the investment inflow to be only $219.3 million.

This amount included both the FDI and Portfolio Foreign Investment (PFI) with the opening up of the India economy (reforms of 1991) the flow of foreign investment in India began to rise.

According to Prof. Subrata Gupta (Role of Foreign Direct Investment and Multinational Corporations – The Indian Control) the official policy towards FDI in the first four decades of Planning in India was ambivalent. Three enactments, viz, MRTP Act, 1969, Indian Patents Act, 1970 and FERA, 1973 were especially detrimental to FDI inflows. MRTP Commission which scrutinized the proposals for capacity expansion by all firms, even if it meant increased FDI, tied the proposals to export commitments.

The Patents Act removed many of the monopolistic advantage of the MNCs under the old patent law. The FERA compelled the foreign firms to dilute foreign equity and also to Indianise the share holding pattern.

A major change from this policy came in 1991 when the Manmohan Singh reforms liberalised the restrictions on FDI. The inflow of FDI gradually increased after 1993 and reached its peak in 1997. In Post 1991 reforms direct investment by foreigners are given preference over loan. FERA 1973 has been replaced by FEMA. Portfolio investment by foreigner in both primary and secondary market has been permitted.

Some of the steps taken to enhance the flow of FDI are as follows:

i. 100% FDI in the oil refining sector

ii. 100% FDI for all manufacturing activities (with contain exceptions) in Special Economic Zones

iii. 26% FDI in news and current affairs media

iv. 74% FDI in technical and medical publication

v. 100% FDI in telecommunication sector

vi. 26% foreign equity in insurance sector, subject to the regulations of Insurance Regulatory and Development Authority (IRDA) 74% FDI in Private sector Bank.

In 2000-01 telecom industry attracted the highest FDI followed by electrical equipments industry. Delhi attracted highest FDI inflow followed by Maharastra, Karnataka and Tamil Nadu. Maximum FDI in India came from companies registered in Mauritius in 1999-2000 and 2000-01 because India had a double taxation accordance treaty with Mauritius. It was followed by USA in both the years.

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