Foreign direct investment refers to investment in a foreign country where the investor retains control over the investment. India has been experiencing anaemic growth since the economic crisis in 2008. Introducing foreign investments is therefore the only way to reach its economic growth targets. Foreign companies invest in India to take advantage of cheaper wages, special investment privileges like tax exemptions, seek comparative advantages in technology, expertise, and capital to India.
India has already marked its presence as one of the fastest growing economies of the world. It has been ranked among the top three attractive destinations for inbound investments. The continuous inflow of FDI in India, which is now allowed across several industries, clearly shows the faith that overseas investors have in the country’s economy. According to the data of Department of Industrial Policy and Promotion (DIPP) the top 10 sectors that receive maximum foreign investment include services, automobiles, telecommunication, computer software and hardware and pharmaceuticals. FDI into India through the approval route shot up 162 per cent to US$ 1.91 billion in the first ten months of the ongoing fiscal year, indicating that government’s effort to improve ease of doing business and relaxation in FDI norms may be yielding results. FDI to India doubled to US$ 4.48 billion in January 2015, the highest inflow in last 29 months, from US$ 2.18 billion in January 2014.
India attracts maximum FDI from Mauritius, Singapore, the Netherlands, Japan, and the US. Healthy inflow of foreign investments into the country helped India’s balance of payments (BoP) situation. India is estimated to have a requirement of around USD 1 trillion investments over five years to overhaul its infrastructure sector, including ports, airports and highways to boost growth.
The Government has amended the FDI policy regarding Construction Development Sector. Relaxation of FDI norms are expected to result in enhanced inflows into the Construction Development sector consequent to easing of sectoral conditions and clarification of terms used in the Policy.
The government has also raised FDI cap in insurance to 49 per cent from 26 per cent through a notification issued by the DIPP. The limit is composite in nature. Also, India’s cabinet has cleared a proposal which allows 100 per cent FDI in railway infrastructure, excluding operations. Though the initiative does not allow foreign firms to operate trains, it allows them to do other things such as create the network and supply trains for bullet trains etc.
Foreign Direct Investments (FDIs) have given the Indian economy a tremendous boost. India needs massive investments to sustain high-quality economic growth, particularly in the energy and infrastructure sectors. While India needs these investments to maintain a steady rate of economic growth, the government needs to tread with caution and ensure foreign investors do not take control of the Indian economy as a result of its liberalised policies. The country today needs a comprehensive and inclusive development strategy, which will use foreign direct investment to lift India’s poor from their current state of deprivation.