Reforms in Foreign Direct Investment Policy of India
Direct Investment Policy of India. Foreign Direct Investment or FDI plays an important role in the economic growth of a nation. It contributes a great deal to employment creation, transfer of technology, foreign exchange earnings, and increase in income levels of workers.
When the NDA Government came into power in May 2014, it was faced with a sluggish economy with stagnant sub-5 per cent growth, an underperforming manufacturing sector, increasing Consumer Price Index (CPI) and a shortfall in foreign investment, etc. According to HSBC, the Indian economy was stuck in a rut. In order to revive the economy and put it back on the path of development, the Government took a number of initiatives including campaigns like ‘Make in India’, ‘Skill India’ and ‘Start-up India’, etc. In November 2015, it introduced major reforms in 15 key sectors of the economy like defence, media, civil aviation and construction with an intent to attract investors from around the globe and to give impetus to the dream of making India ‘a global manufacturing hub’.
FDI norms were relaxed in these sectors so as to promote ease of doing business and simplify the procedure of foreign investments in the country. More and more FDI proposals have been put on automatic route to save time and effort involved in Government route. The limit of the Foreign Investment Promotion Board (FIPB) has also been increased from Rs. 3000 crore to Rs. 5000 crores. Up to 49% of consolidated FDI has been allowed in the defence sector under the automatic route. The Department of Industrial Policy & Promotion (DIPP) has been asked to prepare a booklet by consolidating all instructions related to FDI given in different notifications & press notes so that instead of referring to several documents, the investors have to refer to only a single document. Construction Development Sector has been highly liberalized by easing of area restriction norms, reduction of minimum capitalisation and easy exit from projects. Steps have also been taken to boost low-cost affordable housing. FDI POLICY
According to the World Investment Report 2015 by United Nations Conference on Trade and Development (UNCTAD), India was placed at the ninth slot in the list of top 10 countries which attracted the highest FDI in 2014. India has entered into multi-million dollar agreements with many countries and big companies. It sold the exclusive rights to Japan for the construction of the first bullet train, for which the latter has offered a loan of US$ 8.11 billion. A Memorandum of Understanding (MoU) has been signed between Foxconn and Maharashtra State government in which the former has agreed to invest US$ 5 billion over the next three years for setting up a manufacturing unit between Mumbai and Pune. Russia’s Rostec has also agreed to form a joint venture with HAL, an Indian PSU for the manufacture of Kamov 226T military helicopters in the country. It has provided a major boost with the ‘Make in India’ campaign. According to DIPP, India attracted FDI inflows amounting to US$ 44.9 billion during the financial year 2015 as compared to US$ 36.0 billion in the financial year 2014.
However, many challenges still remain. The critics are divided over the success of ‘Make in India’ campaign. Some are of the opinion that the year 2015 was below expectations and the response of foreign investors was lacklustre. But the fact that these reforms have ushered in an array of opportunities cannot be disputed. Optimism among investors is definitely high. A favourable business environment has been created in the country to attract and keep attracting foreign capital. It is hoped that 2016 will prove to be a better year for FDI than 2015, especially after the latest reforms.