By Anshia Dutta
The Rajya Sabha was informed on 6th February 2017 that 67 foreign direct investments were approved during April-December 2017. Pon Radhakrishnan, the Minister of State for Finance, stated in a written reply, “The government has cleared 67 FDI proposals worth ₹11,703 crores during the period 1 April 2017 to 31 December 2017.”
FDI in India
Foreign direct investment is not only a critical driver of economic growth of India but is also a major source of non-debt financial resource for the economic development of the country. Over the years, India has grown to become an attraction for foreign investment owing to lower labour costs as compared to other countries and various investment privileges, tax exemptions being the most vital of all.
According to the Department of Industrial Policy and Promotion (DIPP), the total FDI in India was $33.75 billion during the first six months of the ongoing fiscal year. The telecommunications sector attracted the highest equity inflow of $6.08 billion, followed by computer software and hardware, and services with the inflows being $3.05 billion and $2.92 billion respectively. The inflows in the manufacturing sector grew by 31% to $4.19 billion during April-June 2017.
During April-December 2017, the maximum FDI equity inflows were from Mauritius of $11.47 billion. Singapore, Netherlands, USA, and Germany followed suit with investments of $5.29 billion, $1.95 billion, $1.33 billion, and $934 million respectively. Also, the FDI equity inflow recorded a five-fold jump in glass, leather, cement and gypsum products, sea transport, air transport, construction development, mining, sugar, and medical and surgical appliances during April-June 2017.
According to DIPP, some significant investment announcements were made recently. Firstly, 15 Japanese companies signed memorandums of understanding with an intention to invest in Gujarat in September 2017. Secondly, it was announced that Singapore’s Temasek will acquire a 16% stake worth $156.16 million in Manipal Hospitals, a Bengaluru-based private healthcare network. Thirdly, a France-based energy firm, Engie SA and Dubai-based private equity firm Abraaj Group entered into a partnership for setting up a wind power platform in India. Fourthly, Skechers, the US-based footwear company, is planning to add about 500 exclusive outlets in India over the next five years and is also planning to launch its apparel and accessories collection in India. Next, Walmart India Private Limited is making plans to set up 30 new stores in the country in the next couple of years. Amazon invested $1 billion in its Indian arm in 2017 and Warburg Pincus, a private equity firm based in New York, invested $100 million in CleanMax Solar, a rooftop solar development firm during the same period.
Also, CG Group, a Kathmandu-based conglomerate wants to invest $155.97 million in its food and beverage business in the country by 2020. International Finance Corporation (IFC) wishes to invest $6 billion in several sustainable and renewable energy programmes in India in 2022. Moreover, SAIC Motor Corporation is planning to set up a fully-owned car manufacturing facility in India and commence operations by 2019. SoftBank is also planning to invest $100 billion technology fund in the leaders of each market segment in India. In addition to this, India and Japan joined hands for infrastructure development in the north-eastern states.
The government has approved five FDI proposals from Oppo Mobiles India, Louis Vuitton Malletier, Chumbak Design, Daniel Wellington AB, and Actoserba Active Wholesale Private Limited. The government is also in talks with stakeholders to further ease FDI in defence under the automatic route to 51% from the current 49%. On top of that, the Department of Economic Affairs closed three FDI proposals worth $3.80 million in October 2017. Pon Radhakrishnan said, “An FDI proposal worth Rs 532 crores of Metaffinity Private Limited, an investment holding company, got the government’s nod. The foreign investment is to be brought in by two foreign investors, viz Canada Pension Plan Investment Board and Pantheon-HK Project Universe, LP, for up to 49% stake in the form of non-voting equity share of Metaffinity Private Limited.”
Initiatives by the government
For many years now, in order to boost foreign investment in the country, the government has been offering incentives like relaxing 87 FDI norms across 21 sectors such as telecom, power exchanges, stock exchanges, and PSU oil refineries, among others. The Modi government amended legislation to increase the foreign investment cap in insurance and pension from 26% to 49%. Further, the government permitted 100% FDI in retail trading of food products with the condition that the food products have to be manufactured or produced in India. In order to increase Japanese investments in India, the government had asked the states to focus on strengthening the single window clearance system for fast-tracking approval processes in September 2017.
Under the Finance Act 2017, the Central Board of Direct Taxes (CBDT) exempted employee stock options, FDI, and court-approved transactions from the long-term capital gains tax. Moreover, the government is also planning to scrap the Foreign Investment Promotion Board (FIPB) which, in turn, will enable the foreign investment proposals requiring government approval to be cleared by the ministries concerned, thereby improving the ease of doing business in the country. The government is also likely to allow 100% FDI in cash and ATM management companies. Since the launch of ‘Make in India’ initiative, foreign inflows have jumped by 64% from October 2014 to June 2017.
India is, no doubt, the most attractive market for global investment today. Foreign investments are not only crucial for overhauling the infrastructure sectors such as ports, airports, and highways of India but are also vital to improve the country’s balance of payments situation and appreciate the value of rupee against other foreign currencies.
According to a statement by the World Bank, “Private investments in India is expected to grow by 8.8% in FY 2018-19 to overtake private consumption growth of 7.4%, and thereby drive the growth in India’s GDP in FY 2018-19.”
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