Every developing country has a major non-debt financing resource and this resource is called foreign investment. Many multinational companies that invest in India like to take advantage of tax exemptions, cheap wages, etc. The current inflow of FDI in India has allowed access to several industries in India.
The Indian government has ensured that the policies and business environment in the country are robust and in favor of the foreign companies. Thus, this has ensured that the foreign capital keeps on flowing in India.
Furthermore, foreign players have also shown their clear faith in India’s industries. Also, there are many initiatives taken by the government that relaxed the foreign norms in sectors like PSU oil refineries, defense, power exchange, telecom, and many more.
Growth of FDI
In 2015, the approval rate of FDI rose up to 162 percent to become the US $1.9 billion in the first 10 months. This was possible only because of relaxing the policies like the ease of use of doing business and easy FDI policies.
Looking at the several data released by DIPP – Department of industrial promotion and policy, FDI doubled in India to the US $4.48 by January 2015. This was the highest inflow seen in the last 29 months. While for January to June, FDI stood at the US $31 billion.
The top 10 sectors that that receives the highest FDI includes telecommunication, automobiles, services, pharmaceutical sector, computer hardware, and software, etc. Of this, telecommunications received FDI worth of US $2.83 billion.
While this was followed by services and automobiles that received US $2.64 billion and the US $2.04 billion respectively. The maximum FDI that India received was through Mauritius which was up to the US $7.6 billion.
Furthermore, a regular flow of FDI into the country helped India in BoP (balance of payments) scenario. Thus, the value of rupee was also stabilized.
Various instruments used for receiving the FDI in India
There are various instruments which are used for the investors to inflow the money in India. The investments are deemed as FDI only when they are made in equity shares. Furthermore, mandatorily and fully convertible debentures are also termed as FDI.
Here the prices or figures are decided up front. This is based on the formula that is included in the provisions of SEBI guidelines and companies act, 2013.
Different forms through which foreign company can conduct business in India
The foreign company that is planning to set up their business in India has to follow certain rules and conditions. Firstly, they have to incorporate their company under the companies act, 1956.
Also, this can be done as a wholly owned subsidiary or a joint venture. Also, they need to set up a liaison office or project office of the company that can take the decisions under the FEMA regulations, 2000.
The procedure through which FDI is received in India
An Indian company can receive FDI through two routes, government routes and automatic routes. In automatic route, FDI is allowed in India without any prior permissions or RBI activities. The companies need to follow the consolidated FDI policy for this.
The FDI which is not covered under automatic route has to pass through the government route. Thus, this requires permission by the ministry of finance, economic affairs, and FIPB.
Practice Questions on Foreign Investment
Q. Which of the following countries requires FDI clearance from the ministry of home affairs?
A. US and Russia
B. US and Japan
C. Bangladesh and Pakistan
D. Bangladesh and Nepal
Answer: C. Bangladesh and Pakistan