Emerging trends in FDI
Emerging trends in FDI: The most important financial source in India is foreign direct investment, particularly for developing industries. Exploiting many chances and using them to advance the country to the desired stage of development is made possible by foreign direct investment (Gola, Dharwal, & Agarwal, 2013). In recent years, many patterns in foreign direct investment have affected the global economy, encompassing both established and developing economies.
the significant actor in India that has now come to light. Foreign direct investment is increasing in India, and new government regulations and numerous programmes like Make in India are the key drivers of this growth, according to an analysis of the trend.
Due to efforts to create an environment that is hospitable to investors and facilitates conducting business, the nation has seen increased patterns of foreign direct investment. India was able to improve its ranking as a trustworthy country for foreign direct investment, moving up to position 10 in 2015 from position 15 in 2014. As a consequence, India garnered $40 billion in foreign direct investments during the fiscal year 2015–16, up 29.2% from the previous year (UNCTAD, 2016).
India’s sources of foreign direct investment
India has been able to obtain a significant quantity via stock inflows thanks to its ability to attract the attention of the world’s economies. Singapore became the biggest investor for the fiscal year 2015–16, investing a total of $13.69 billion. The economies of Mauritius and the United States invested $8.35 billion and $4.19 billion respectively after Singapore. The total number of private equity and merger and acquisition (M&A) transactions, which serve as conduits for FDI inflow, has increased by two times since the end of 2015. (IBEF, 2016a).
From 1991 to 2005, foreign direct investment in India increased by 318.2 times, from $129 million in 1991–1992 to $41050 million (Dutta & Sarma, 2008). Prior to 2015–16, Singapore overtook Mauritius as the largest investor in the nation. Nevertheless, the nation is the largest investor, accounting for 34% of all total inflows, which is more than double Singapore’s proportion.
According to the Department of Industrial Policy and Promotion’s study, India was able to add value between 2000 and 2015 in a number of industries, including the service sector, IT sector, automotive industry, pharmaceutical industry, power industry, and construction company.
Foreign direct investment patterns in the services sector
With a total of $240.57 billion from 2000 to 2015, the service sector has been able to attract the most foreign direct investment equity in the nation. Foreign direct investment in this industry as a whole was $27.63 billion in 2015. (DIPP, 2015). In the period between 2000 and 2011, the service sector’s proportion of foreign direct investment in India increased from 15.2% to 19.9%.
Due to the current administration’s election and the creation of a more welcoming environment for investors, there has been a noticeable rise in foreign investments in the service sector since 2014. The government’s many efforts are a crucial factor in the increase of foreign direct investment in this particular area. The investment ceiling has increased in several industries, including the insurance industry, which went from 26% to 49%, as well as other industries including rail and defence. The increase in investment in this industry has also been facilitated by changes in the timetables for the approval of projects involving foreign direct investment (IBEF, 2016).
Trends in the domain of information technology for foreign direct investment
The second most alluring area for foreign investment in India is the information technology sector. Since 2000, the overall inflows into this industry have increased to $108.13 billion; in 2015, they totalled $34.3 billion (DIPP, 2015). The fact that the country’s IT sector is expanding quickly and that there is an abundance of inexpensive labour is a significant factor in the attraction of businesses from the international market. 2014 is once again the pivotal year in this respect.
Foreign direct investment trends in the building sector
After 15 years, the building industry is once again a significant sector luring foreign direct investment to the nation. From 2000 to 2015, the industries attracted $113.8 billion in foreign direct investment. A significant amount of foreign direct investment is drawn to this industry because to several Indian government programmes including Make in India. However, the amount of foreign direct investment fell to $0.67 billion in 2015. (DIPP, 2015).
Despite the fact that investment is declining since 2011 alone, it has had the second-highest cumulative inflows since the year 2000, just behind the service sector. The growth in opportunities in the power sector, which includes electricity production, distribution, transmission, and equipment, is responsible for the increase in foreign direct investment in this industry. In addition, the infrastructure industry has shown moderate growth since 2000. The construction-related foreign direct investment makes up 9% of all inflows of foreign direct investment into the nation (IBEF, 2016b).
Emerging trends in FDI
The government’s stance on foreign investment:
Following India’s independence in August 1947, Jawaharlal Nehru, who was the country’s prime minister at the time, issued a statement in April 1949 assuring foreign investors of the following:
Since there would be no distinction between international and exclusively Indian businesses, foreign and domestic money would be treated equally.
Taking into account India’s situation with respect to the availability of foreign currency, foreign investors would be allowed to remit earnings and repatriate money.
Foreign investors shall get fair and equitable remuneration in the event that a foreign firm is nationalised.
The aforementioned policy was founded on a number of factors. If fast industrial and economic growth was to occur, there was a lack of domestic capital that needed to be made up by foreign capital. Additionally, as India at the time lacked these crucial conditions for growth and development, capital goods, equipment, and technological know-how from outside were also required.
Tax exemptions:
In the beginning, in an effort to draw foreign capital (i.e., foreign enterprises) to India, the government gave a number of tax breaks and, in order to speed up the licencing process and minimise delays in finalising foreign partnership agreements.
The Indian Investment Centre was established in 1961 with the purpose of bringing together international and Indian businesspeople and educating foreign investors about the many economic prospects in India.
The Indian government made yet another significant move in 1972 to draw in international investment. Foreign corporations with 100% ownership rights in India were allowed to do so as long as they committed to exporting all of their output.
Export Responsibility
Negotiations between the foreign enterprises and the Government of India were to determine the amount of authorised foreign capital if the export obligation was less than 100% of its production.
The Indian government was forced to decide between indigenizing foreign subsidiaries in India or using their assistance to increase export. The second of the two suggested routes was the one that the government chose. However, there were several issues with the second policy that the government chose.