Recent Trends in Foreign Direct Investments in India

India is the second-most populous country in the world with a population estimation of 1,380,004,385 people in the year 2020, which is about 17.7% of the total population in the world. When the pandemic hit the country, being very densely populated, it had no other option but to go through a strict lockdown to control the spread of the virus. It was the world’s largest lockdown & withstood several phases. The consequence was that it brutally affected the economy of the nation.

To recover its economy the country took several bold steps & came up with “Atmanirbhar Bharat Abhyaan” which literally translates to the Self-Reliant India movement. This campaign targets to convert the crisis caused by the deadly pandemic into an opportunity. If the country becomes self-reliant, by boosting the local business & local production of the goods & services while lessening the dependency on other countries, it would ultimately improve its economy. It is high time that India stops depending too much on other countries for its goods & services necessities. The goal behind this ‘pursuit of self-reliance’ is to develop the nation to be a significant part of the global economy.

According to the Indian government making India self-reliant does not involve restricting the FDI, at all. On the contrary, by enhancing the domestic manufacturing capacity, the country would be not only self-sufficient but also build its export capacity & stable position in the global economic map. So, India appreciates & welcomes foreign investors in many sectors with open arms.

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Currently for India, improved FDI inflow is highly indispensable as it needs huge investments to revamp & boost the growth of its numerous sectors. FDI being very crucial for the growth of the Indian economy, the government of India came up with several reforms in its FDI policy to attract foreign investors.

The Department for Promotion of Industry and Internal Trade, Ministry of Commerce, Industry, Government of India presented ‘Consolidated FDI Policy’ which is effective from October 15, 2020. As per this policy, any non-resident entity is eligible for investing in any of the FDI permitted sectors in India if in acquiescence to the FDI policy. However, any investor or beneficial owner or entity belonging to the land bordering countries of India can invest in India only by the government route. In other words, they need permission from RBI or the Government of India before investing in India. The list of these countries includes China, Pakistan, Nepal, Myanmar, Bhutan, Afghanistan & Bangladesh. Out of these nations, mainly any citizen or entity of Pakistan cannot invest in defence, space, atomic energy in addition to the FDI prohibited sectors of India. This regulation is to check any opportunistic takeovers/acquisitions of Indian companies by its neighbouring nations.

The ‘Consolidated FDI Policy’ also lists out the prohibited sectors for FDI, which means no foreign investors can invest in the below-listed sectors of India.

  • Lottery sector (includes both government & private lottery and also online lotteries, etc)
  • Gambling & Betting Sector
    (Every type of Foreign technology collaboration in the Lottery Business, Gambling & Betting sector such as licensing for franchise, trademark, brand name, management contract is as well prohibited in India)
  • Chit Funds
  • Trading in Transferable Development Rights (TDR)
  • Manufacturing Cigars, cheroots, cigarillos, cigarettes, Tobacco, or tobacco substitute goods
  • Nidhi Company (A kind of Non-Banking Financial Company)
  • Activities/sectors that not open to private sector investment such as Atomic Energy, Railway operations, etc.
  • Real Estate Business or Construction of Farm Houses
    (Real Estate Business does not involve the development of townships, construction of residential /commercial premises, roads or bridges, and Real Estate Investment Trusts (REITs) registered & regulated under the SEBI (REITs) Regulations 2014.)

The policy further lists out the permitted sectors.

(Note: FDI in India is allowed through two routes:

  1. The Automatic Route – No need to take approval from the Reserve Bank of India (RBI) or the government of India for investing in India
  2. The Government Route – Necessitates taking approval from the Reserve Bank of India (RBI) or the government of India before investing in India.)

As the Government of India opens up its diverse sectors for FDI & eases regulations to attract foreign investors, it is obviously creating huge promising opportunities for the foreign investors. Apart from that, India has a potent market size & its consumer market is anticipated to grow four times by the year 2025. Cheap human resource availability, abundant resources & suitable geographical settings are also a few reasons that grab the interest of foreign investors in India.

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