FDI – Market Size, Developments, Government Initiatives

Foreign Direct Investment (FDI) has been a significant non-debt financial asset for the economic development of India. Foreign organizations invest in India to exploit relatively lower wages, special investment privileges like tax exemptions, etc, and so forth. For a nation where foreign investment is being made, it also means achieving technical know-how and generating employment. The Indian Government’s favorable policy regime and vigorous business environment have guaranteed that foreign capital continues streaming into the nation. The Government has taken numerous initiatives lately, for example, loosening up FDI standards across sectors, for example, defense, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.

Market Size

As per Department for Promotion of Industry and Internal Trade (DPIIT), FDI value inflow in India remained at US$ 469.99 billion during April 2000 and March 2020, demonstrating that the Government’s push to improve the simplicity of doing business together and loosening up FDI standards has yield results.

FDI Equity inflow in India remained at US$ 49.97 billion in 2019-20. Information for 2019-20 shows that the service sector pulled in the most elevated FDI equity inflow of US$ 7.85 billion, followed by computer software and hardware at US$ 7.67 billion, the telecommunications sector at US$ 4.44 billion, and trading at US$ 4.57 billion. During 2019-20, India got the greatest FDI equity inflow from Singapore (US$ 14.67 billion), followed by Mauritius (US$ 8.24 billion), Netherlands (US$ 6.50 billion), USA (US$ 4.22 billion), and Japan (US$ 3.22 billion).

Investments/Developments

• On September 08, 2020, Byju’s (Indian education technology firm) brought US$ 500 million up in a new round of funding led by Silver Lake, a US-based private equity organization; this move pushed the organization’s valuation to US$ 10.8 billion.
• In September 2020, Cashaa, a London-based neobank, raised US$ 5 million (Rs 360 million) in funds from O1ex, a Dubai-based blockchain investment, and advisory firm, for its overall development, including India, Africa, and Caribbean markets. In India, the organization intends to tap the developing crypto client market by launching a neobank for the crypto banking framework.
• In September 2020, Unacademy, an Edtech stage, raised US$ 150 million from SoftBank Group (a Japanese conglomerate), boosting its valuation to US$ 1.45 billion.
• On 21 August 2020, the Government of Singapore declared an investment of Rs 4.5 billion (US$ 63.84 million) in the qualified institutional placement (QIP) offering of shopping center developer Phoenix Mills Ltd.
• On 14 August 2020, Israel-based Coralogix, supplier of AI-based log analytics and monitoring solution, reported a key venture into India with a pledge to put over US$ 30 million in the following five years.
• From January 2020 to July 2020, US FDI in India crossed US$ 40 billion, mirroring the elevated level of certainty of American partnerships on the nation. India saw an 18% expansion in FDI from April 2020 to June 2020 (during the COVID-19 pandemic). In mid-July 2020, FDI by the innovation firms added up to ~US$ 17 billion, driven by Google’s ventures worth US$ 10 billion and the other key financial specialists included firms, for example, Foxconn, Amazon, and Facebook.
• India Inc’s outward foreign direct investment (OFDI) dropped to US$ 5.724 billion in the initial four months (April 2020–July 2020) of 2020–2021 against US$ 11.130 billion for the corresponding period in 2019–2020.
• Because of the end in activities in the midst of the continuous pandemic, the OFDI was delayed in the initial three months (April 2020: US$1.018 billion; May 2020: US$ 1.294 billion; and June 2020: US$ 893.18 million), while a considerable development was recorded in July 2020, when the OFDI arrived at US$ 2.518 billion, as economies overall opened and the COVID-19 lockdown limitations began to mollify on the tasks.

Government Initiatives

• In August 2020, the Indian government amended Foreign Direct Investment Policy, 2017 on business coal mining strategy making it approved uniquely under the Government course. In 2019, the Central Government, altered FDI Policy 2017, to allow 100% FDI under automatic route in coal mining activities.
• In May 2020, Government increased FDI in defense manufacturing under the automatic route from 49% to 74%.
• In April 2020, the Government changed the existing solidified FDI policy for confining opportunistic takeovers or the acquisition of Indian organizations from neighboring countries.
• In March 2020, the Government allowed non-resident Indians (NRIs) to obtain up to 100% stake in Air India.

Types of Investors of Foreign Funding for Businesses in India

Individual

• Financial institutions
• Pension and Provident Fund
• Foreign Venture Capital Investors

Company

• Sovereign Wealth Funds
• Foreign Trust
• Non-Resident Indians (NRI’s) and Persons of Indian Origin (PIO’s)

Foreign Institutional Investors

• Partnership and Proprietorship Firm
• Private Equity Funds
• Others

India has thrived to become one of the biggest economies in the world today. Foreign organizations are hoping to invest here to exploit easy investment policies and privileges like tax exemptions, and so on and generally less expensive business compensation. Foreign funding in India is a basic driver of economic growth and development.

FDI policy allows foreign funding for businesses in India under two routes

The Automatic Route

Under this route, Foreign Direct Investment up to 100% is allowed and no Central Government permission is required except the following. The services/activities listed below require prior approval of the government.

• Where more than 24% of foreign equity is proposed to be accepted for the production of things held for the Small Scale Sector.
• FDI in sectors/activities to the extent allowed under Automatic Route doesn’t need any earlier approval either by the government or the Reserve Bank of India.
• The investors are simply needed to advise the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the necessary documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors
• Where provisions of Press Note 1 (2005 Series) gave by the Government of India are attracted.

Government Route

Sectors and Activities that are not covered under the automatic route require approval from the Government of India and are considered by the Ministry of Finance and Foreign Investment Promotion Board (FIPB).

Recently, the government has made a few changes in FDI standards in sectors like aviation, single-brand retail, digital marketing, and contract manufacturing.

Road Ahead

India will be the most alluring developing business sector for global partners (GP) speculation for the coming 12 months according to an ongoing business sector engaging quality overview led by Emerging Market Private Equity Association (EMPEA). Yearly FDI inflow in the nation is required to ascend to US$ 75 billion throughout the following five years according to the report by UBS. The Government of India is intending to accomplish US$ 100 billion worth of FDI inflow in the following two years.

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