Foreign Direct Investment in India
In finance, foreign investment is investment originating from other countries. FDI plays a important role in the development of every economy it helps in achieving a certain degree of financial stability development and growth.
In order to attact Foreign direct Investment (FDI) from the world’s major investors and in order to present a favorable scenario for investors the Indian government has announced a number of reforms and has implemented several industrial policies. The foreign direct investment is allowed in India through collaborations that are of financial nature, joint venture collaborations, through preferential allotments, investment through EURO issues.Apart from this it has opened of FDI route by setting up of 100% EOUs /EHTPs/ STPs etc and entering into Foreign technology agreement.
As a result of the various policy initiatives taken, India has been
rapidly changing from a restrictive regime to a liberal one, and FDI
is encouraged in almost all the economic activities under the automatic
route, huge amounts of foreign direct investment is coming into India
through non- resident Indians, international companies, and various
other foreign investors. The growth of FDI in India boosted the economic
growth of the country major advantages of FDI in India have been in
• Increased capital flow.
• Improved technology.
• Management expertise.
• Access to international markets
The increased flow of FDI in India has given a major boost to the country's economy and so measures must be taken in order to ensure that the flow of FDI in India continues to grow. The major sectors that have been benefited from Foreign Direct Investment are as follows:
• Financial sector (banking and non-banking).
• Hospitality and tourism
• Software and Information Technology.
An essential requirement of the foreign investing community in making their investment decision is availability of timely and reliable information about the policies and procedures governing FDI in India. In order to promote the Foreign Investment in India, the government has taken several steps such as implementation of several Industrial Policies, opening of FDI route, Foreign technology Agreements, set up of 100% EOUs / EHTPs / STPs etc. The form in which foreign direct investment is allowed in India is through collaborations that are of financial nature, joint venture collaborations, or through preferential allotments, and also through Euro issues.
The proposals for foreign direct investment in India get their approval through two routes that are the Reserve Bank of India and the Foreign Investment Promotion Board. Automatic approval is given by the Reserve Bank of India to the proposals for foreign direct investment in India. The Reserve Bank of India gives approval within the time period of two weeks. It gives approval to the proposals for foreign direct investment in India that involve FDI up to 74% in the nine categories that are included in List four, FDI up to 50% in the three categories that are included in List two, and FDI up to 51% in the forty eight industries that are included in List 3.
FDI Approval in India is also done by the Foreign Investment Promotion Board (FIPB), which processes cases of non- automatic approval. The time taken by Foreign Investment Promotion Board for approving the proposals for foreign direct investment in India is between four to six weeks. The approach of FIPB is liberal as a result of which it accepts most of the proposals and rejects very few.
FDI approvals in India have grown significantly in recent years. Significant FDI approvals have taken place in telecom, real estate, banking and insurance sectors. Several other sectors have also benefited from FDI approvals in India. FDI approvals have played a major role in the economic growth of India in recent years.
In certain sectors such as information technology, development of integrated
townships, mass rapid transport services, export oriented manufacturing,
complete ownership by foreign investors is also allowed.