INTRODUCTION
The quick and increasingly growing economy of India
in most of its sectors, has made India one of the most well-known and accepted
destinations in the world, for Foreign Direct Investment. India has expanding
market trends and the immense development in technology and telecommunication,
have further collectively made India, the apple of investors' eye, for most
productive, profitable, and secure foreign investment. India has noticeably
emerged out as the second most popular and preferable destination in the world,
after China, for highly profitable FDI. Be it sectors like infrastructure,
technology, telecom or hospitality an array of foreign investors have made
direct investment in India.
WHAT IS THIS FDI?
FDI is allowing overseas markets for booming consumer in many
forms. Broadly, it includes "mergers and acquisitions, building new
facilities, reinvesting profits earned from overseas operations and intra
company loans". FDI means investment done by a foreign company in another
country. This relationship, consists of a parent enterprise and a foreign
affiliate which together form a Trans-National Corporation. The major
reasons for FDI is to take the benefit of growth opportunities and
advantages of cheaper wages, tax exemptions in that country. Usually there
are 2 methods of FDI - First, by buying a company located in that country
either completely buying it out and making the company its wholly owned
subsidiary or by starting a joint venture with the existing company. Second, by
opening a branch for expanding its own existing business in that particular
country.
FDI AND ITS FORMS
FDI is said to be Horizontal when a firm duplicates its home
country-based activities at the same value chain stage in a host country. Platform
FDI arises from a source country into a destination country for the purpose of
exporting to a third country. Vertical FDI takes place when firms perform
value-adding activities stage by stage in a vertical fashion in a host country.
Horizontal FDI decreases international trade as the product of them is usually
aimed at host country; the two other types generally act as a stimulus for it.
IMPACTS
The entrance of foreign retail chains has various impacts on
India. Investors build supply chains and logistical capabilities, spurring
significant improvements in the infrastructure needed to source, ship, store
and deliver products. On the other hand their entry growth persuades domestic
competitors to invest in infrastructure and logistics, as well as greatly speed
up the emergence of product standards. The FDI in Indian business sectors, can
easily be made in a variety of ways, through the Governmental and Automatic
Routes. However, the Joint Ventures are the most popular and preferred forms of
making investment in Indian industry.
EFFORTS FOR INDIAN ECONOMIC GROWTH
India's relaxation of foreign investment rules, aimed at drawing
funds needed to turn around slowing economic growth and support a crumbling
rupee. Prime Minister Manmohan Singh eased FDI rules for several industries, including insurance and
telecoms. The long-pending move to increase the FDI cap in insurance
from 26 to 49 per cent, still needs approval from parliament. The measures
came a day after the central bank mounted a defence of the rupee by tightening liquidity and lifting short-term interest
rates, in order to make speculation against the currency more
difficult. Those moves helped to slightly steady a currency that has lost
9 per cent against the dollar since the start of May, making it the worst
performer among emerging Asian currencies.
Among the latest steps announced, the foreign investment cap in
telecoms, which stood at 74 per cent, was removed. But the measure was not
expected to draw fresh entrants as the cut-throat industry is already crowded,
and plagued by regulatory uncertainty. A move last September to allow FDI in
supermarkets has not attracted a single proposal, as rules continue to be
ironed out.
Liberalization of the aviation sector, on the other hand, has
yielded investment plans from Malaysia's AirAsia and Etihad of Abu Dhabi.
Etihad's planned investment in Jet Airways has
been bogged down by the concerns of Indian regulators over specifics of the
deal. India has
further opened its economy to FDI in the latest attempt to boost sluggish
economic growth and strengthen the ailing rupee.
In sectors like Oil refining, commodity exchanges and
“single-brand” retailing, the cap on foreign investment will remain unchanged,
but a larger proportion will be allowed under the “automatic route” rather than
requiring official approval. These moves could allow some foreign companies
with minority domestic partners, including Britain’s Vodafone and Norway’s
Telenor, to take 100 per cent control of their Indian operations.
The governmentrcently announced FDI cap in defence at 26 per
cent, even while stating that higher foreign investment in ‘state-of-the-art’
technology manufacturing will be considered by the Cabinet Committee on Security
on a case-to-case basis.
WELCOME NOTE TO THE INVESTORS..
India,
post liberalization, has not only opened it's doors to foreign investors but also made
investing easier for them by implementing the following measures:
·
Foreign exchange controls have been eased on the account of
trade.
·
Companies can raise funds from overseas securities markets and
now have considerable freedom to invest abroad for expanding global operations.
·
Foreign investors can remit earnings from Indian operations.
·
Foreign trade is largely free from regulations, and tariff
levels have come down sharply in the last two years.
·
While most Foreign Investments in India are allowed in most
industries, foreign equity up to 100 % is encouraged in export-oriented units,
depending on the merit of the proposal. In certain specified industries
reserved for the small scale sector, foreign equity up to 24 % is being
permitted now.
·
Complete tax exemptions.
·
Investment incentives are offered by both the Central Government
and the Government of the State in which the unit is located.
·
India has tax treaties with 40 countries.
Now the other question that arise is Why FDI is necessary for
the nations economy ?
FDI inflow speeds the growth of GDP in the invested country as
huge foreign investment injects huge cash in the nation's economy which
ultimately give a strong boost to the GDP growth rate. Foreign Investment
brings the foreign currency to that particular country in which investment is
done and we all know how much valuable Foreign currency is ? especially for a
country like India which spends more than 65% of its foreign currency in
importing oil. FDI increases the employment and decreases the expenditure of
Government as foreign companies with huge cash reserves, themselves invest in
the backend infrastructure of that country in order to improve it according to
their business needs. When
Foreign companies comes to do business in a particular country than along with
their huge cash, they also brings their highly developed technology and R&D
which they share with the companies located in that country ultimately boosting
the productivity of the industrial sector.
CONCLUSION
As
the industry progresses,
opportunities abound in India, which has the world's largest middle class
population of over 300 million, is attracting foreign investors by assuring them good returns. The scope for foreign investment in India is unlimited. Investor confidence approach is very robust in India. It is
expected to see 15 per cent increase in FDI in 2013," said Nagesh Kumar,
Chief Economist, UN-ESCAP, while releasing the World Investment Report 2013.
However, FDI inflows to India dropped by 29 per cent to $26 billion in 2012, as
per the report ''Global Value Chains: Investment and Trade for Development''.
India experienced its slowest growth in a decade in 2012 and also struggled
with risks related to high inflation. As a result, investor confidence was
affected, and FDI inflows to India declined significantly. But the country's
FDI prospects are improving. Inflows to the services sector are likely to grow
and flows to manufacturing are expected to increase as a number of countries,
including Japan and Korea establish country and industry specific industrial
zones in the Delhi-Mumbai industrial corridor.
.jpg)
