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FDI Hits All-Time High of $61.96 Billion in 2017-18 – A Look at The Numbers & Reasons

Foreign Direct Investment

Foreign Direct Investment is one of the main factors that drives the economic growth of any country. Maintaining the steady pace of growth, the foreign direct investment in India increased to USD 61.96 billion in 2017-18, an all-time high.

As per the data from the department of industrial policy and promotion, the FDI has been witnessing a constant growth from last four years. The FDI stood at USD 60.08 billion last fiscal.

 

Source: http://dipp.nic.in/sites/default/files/FDI_FactSheet_21February2018.pdf

The government of India has approved many amendments in the FDI policy to make it more investor friendly. These reforms are intended to liberalize the FDI policy in order to provide ease of doing business in the country.

Recently, the government has brought FDI policy reforms in multiple sectors like Construction Development, Broadcasting, Defence, Insurance, Pension, Other Financial Services, Civil Aviation, Asset reconstruction Companies, Trading, Pharmaceuticals etc. These measures by the government have resulted in a visible increase in FDI inflows.

No More Government Approval for FDI in Single Brand Retail Trading (SBRT)

The FDI policy for SBRT previously allowed 49% FDI under automatic route, and FDI beyond 49% and up to 100% through Government approval route. But the government has now permitted 100% FDI under automatic route for SBRT.

The government while remaining consistent with several steps it has taken over the last few years to liberalise the SBRT FDI regime, relaxed the sourcing norms to be rid of confusion it created for foreign investor and in return hindered the economic growth.

Foreign Airlines Allowed to Invest Up To 49% Under Approval Route in Air India

Under the existing rules, foreign airline could invest up to 49%, after government’s approval, in Indian companies operating scheduled and non-scheduled air transport services. However, this provision was not available for Air India. This resulted in foreign investor not being able to invest in the national carrier.

The government of India decided to do away with this restriction and allowed foreign airlines to invest up to 49% under approval route in Air India. However, there are two conditions subjected to it.

Construction Development: Real Estate Broking Services

Since the real-estate broking service does not amount to real estate business, is therefore eligible for 100% FDI under automatic route.

FIIs/FPIs Allowed to Invest in Power Exchanges Through Primary Market

The existing policy allowed 49% FDI for Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010. However, FII/FPI purchases were strictly restricted to the secondary market only.

The government liberalised the policy and decided to allow FIIs/FPIs to invest in Power Exchanges through primary market as well.

Issuing of Equity Shares

As per the extant FDI policy, issue of equity shares against non-cash considerations like pre-incorporation expenses, import of machinery etc. is permitted under Government approval route. It has now been decided that issue of shares against non-cash considerations like pre-incorporation expenses, import of machinery etc. shall be permitted under automatic route in case of sectors under automatic route.

Definition of ‘Medical Devices’ Amended in The FDI Policy

The government also amended the definition of ‘medical devices’ in the FDI policy. The definition as per the present rules of pharmaceuticals sector contained in the FDI policy would be subject to amendment in the Drugs and Cosmetics Act. Therefore, it was decided drop the reference to Drugs and Cosmetics Act from FDI policy, as the definition in contained in the policy is complete in itself.

Conclusion

An FDI of USD 61.96 billion is a first, the concerted efforts of the government have clearly borne results. The increase is clearly because of the steps taken by the government to improve the business climate and liberalizing the policy norms.

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