New FDI approval regime.

New FDI approval regime

Author: Shubham Mathur, HPNLU.

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.

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.

Market size

According to the Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity inflows in India in 2018-19 stood at US$ 44.37 billion, indicating that the government’s effort to improve ease of doing business and relaxation in FDI norms is yielding results.

Data for 2018-19 indicates that the services sector attracted the highest FDI equity inflow of US$ 9.16 billion, followed by computer software and hardware – US$ 6.42 billion, trading – US$ 4.46 billion and telecommunications – US$ 2.67 billion. Most recently, the total FDI equity inflows for the month of March 2019 touched US$ 3.60 billion.

During 2018-19, India received the maximum FDI equity inflows from Singapore (US$ 16.23 billion), followed by Mauritius (US$ 8.08 billion), Netherlands (US$ 3.87 billion), USA (US$ 3.14 billion), and Japan (US$ 2.97 billion).

Investments/ developments

India emerged as the top recipient of greenfield FDI Inflows from the Commonwealth, as per a trade review released by The Commonwealth in 2018.

Some of the recent significant FDI announcements are as follows:

• In October 2018, VMware, a leading software innovating enterprise of US has announced an investment of US$ 2 billion in India between 2023.
• In August 2018, Bharti Airtel received approval of the Government of India for sale of a 20 percent stake in its DTH arm to an America based private equity firm, Warburg Pincus, for around $350 million.
• In June 2018, Idea’s appeal for 100 percent FDI was approved by Department of Telecommunication (DoT) followed by its Indian merger with Vodafone making Vodafone Idea the largest telecom operator in India
• In May 2018, Walmart acquired a 77 percent stake in Flipkart for a consideration of US$ 16 billion.
• In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 million) in the state of Maharashtra to set up multi-format stores and experience centers.
• Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$ 155.97 million) in India by 2020 in its food and beverage business, stated Mr. Varun Choudhary, Executive Director, CG Corp Global.
• International Finance Corporation (IFC), the investment arm of the World Bank Group, is planning to invest about US$ 6 billion through 2022 in several sustainable and renewable energy programs in India.

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 the e-commerce sector has been developed to ensure a level playing field for all participants.

The government of India is planning to consider 100 percent 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 percent, 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 percent of the total sales of such vendors.

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, the Government of India allowed foreign airlines to invest in Air India up to 49 percent with government approval. The investment cannot exceed 49 percent directly or indirectly.

No government approval will be required for FDI up to an extent of 100 percent 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 the 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 percent from the current 49 percent, in order to give a boost to the Make in India initiative and to generate employment.

In January 2018, the Government of India allowed 100 percent FDI in single-brand retail through automatic route.

India has become the most attractive emerging market for global partners (GP) investment for the coming 12 months, as per a recent market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA).

Annual FDI inflows in the country are expected to rise to US$ 75 billion over the next five years, as per a report by UBS.

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 are expected to grow by 8.8 percent in FY 2018-19 to overtake private consumption growth of 7.4 percent, and thereby drive the growth in India’s gross domestic product (GDP) in FY 2018-19.