Definition

• The Foreign Direct Investment refers to the direct investment into the production and management.
• A foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.
• It is thus distinguished from a foreign portfolio investment by a notion of direct control.
• This can be done by either buying a company or by expanding operations of an existing business.

Significance

• Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India.
• Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc.
• For a country where foreign investments are being made, it also means achieving technical know-how and generating employment.

Recent Trends

• The Indian government’s favourable policy regime and robust business environment have 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.
• According to Department for Promotion of Industry and Internal Trade (DPIIT), the total FDI investments in India April-December 2018 stood at US$ 33.49 billion, indicating that government's effort to improve ease of doing business and relaxation in FDI norms is yielding results.
• Foreign Direct Invest (FDI) has increased constantly from USD 45.15 billion in 2014-15 to USD 60.97 billion in 2017-18.

India emerged as the top recipient of greenfield FDI Inflows from the Commonwealth, as per a trade review released by The Commonwealth in 2018. Data for April-December 2018 indicates that the services sector attracted the highest FDI equity inflow of US$ 6.59 billion, followed by computer software and hardware – US$ 5.00 billion, trading – US$ 3.04 billion and telecommunications – US$ 2.29 billion. Most recently, the total FDI equity inflows for the month of December 2018 touched US$ 4.39 billion. Refer Chart 2;

• During April-December 2018, India received the maximum FDI equity inflows from Singapore (US$ 12.98 billion), followed by Mauritius (US$ 6.02 billion), Netherlands (US$ 2.95 billion), USA (US$ 2.34 billion), and Japan (US$ 2.21 billion)

Government Initiatives

• As of February 2019, the Government of India is working on a road map to achieve its goal of US$ 100 billion worth of FDI inflows.
• In February 2019, the Government of India released the Draft National e-Commerce Policy which encourages FDI in the marketplace model of e-commerce. Further, it states that the FDI policy for e-commerce sector has been developed to ensure a level playing field for all participants. 100% FDI under automatic route is permitted in marketplace model of e-commerce. However,  FDI is not permitted in inventory based model of e-commerce.
• Government of India is planning to consider 100 per cent FDI in Insurance intermediaries in India to give a boost to the sector and attracting more funds.
• In December 2018, the Government of India revised FDI rules related to e-commerce. As per the rules 100 per cent FDI is allowed in the marketplace based model of e-commerce. Also, sales of any vendor through an e-commerce marketplace entity or its group companies have been limited to 25 per cent of the total sales of such vendor.
• In September 2018, the Government of India released the National Digital Communications Policy, 2018 which envisages increasing FDI inflows in the telecommunications sector to US$ 100 billion by 2022.
• In January 2018, Government of India allowed foreign airlines to invest in Air India up to 49 per cent with government approval. The investment cannot exceed 49 per cent directly or indirectly.
• No government approval will be required for FDI up to an extent of 100 per cent in Real Estate Broking Services.
• In September 2017, the Government of India asked the states to focus on strengthening single window clearance system for fast-tracking approval processes, in order to increase Japanese investments in India.
• The Ministry of Commerce and Industry, Government of India has eased the approval mechanism for foreign direct investment (FDI) proposals by doing away with the approval of Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application.
• The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to the Make in India initiative and to generate employment.
• In January 2018, Government of India allowed 100 per cent FDI in single brand retail through automatic route.

Way forward

• India has become the most attractive emerging market for global partners (GP) investment for the coming 12 months
• Annual FDI inflows in the country are expected to rise to US$ 75 billion over the next five years
• The Government of India is aiming to achieve US$ 100 billion worth of FDI inflows in the next two years.
• The World Bank has stated that private investments in India is expected to grow by 8.8 per cent in FY 2018-19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in India's gross domestic product (GDP) in FY 2019-20.