Factors influencing and propelling Foreign Investment in India

For an emerging market and economy like India, Foreign Direct Investment is very critical. In the greater developing stage, the companies require the expertise and funding from multinational companies, who seek to expand their sales abroad. For a country like India, which has immense scope and appetite for development, private investment in water, energy and infrastructure is an imperative. It’d create more jobs and increase wages. A recent UN report stated that developing nations received 37% of global FDI. Asia was the largest recipient of the investments. The investment climate in this country has improved considerably since its economy was opened in 1991. You can largely attribute the rise to ease in FDI norms across several economic sectors.

The Current Standing

Today, India is a part of top 100 clubs of EODB, Ease of doing business, globally ranking 1st in Greenfield FDI ranking. The country received a record $60.1 billion in FDI in 2016-17. There are three main categories of FDI Investment India. Category 1 is the 100% FDI the government permits through automatic route. Category 2 is up to 100% FDI they permit through government agencies and the third one is an amalgam of both the routes. Using the automatic route, the non-resident corporate and investor of the Indian firm doesn’t require any approval from the Indian Government for the investment. Under the government pathway, before the investment, you need the government’s approval. The Administrative Ministry is in charge of approving the FDI proposals.

The Sector Specific Conditions

Foreign Investment in India caters to multiple sectors. These are aviation, automobile, biotechnology, capital goods, chemicals, constructions, defense manufacturing, electronics, food processing, healthcare, leather, renewable energy, oil & gas and pharmaceuticals and so on. To take the Government pathway to these sectors, you need to follow a certain set of rules and regulations. In all the sectors, you have 100% FDI permission on the automatic route, but it’s subject to applicable regulations, conditionality and security.

Animal Husbandry and Agriculture

A huge area of FDI Investment in India, the main conditions to take government route is Horticulture, floriculture, and cultivation of mushrooms and vegetables under monitored conditions. Then you have development and production of planting material and seeds. Next condition is animal husbandry, apiculture, aquaculture and Pisciculture. In air-transport services or non-scheduled services under civil aviation sector, the main conditions are helicopter and seaplane services. They require DGCA approval. The other conditions have Air Transport services including domestic scheduled passenger airlines and non-scheduled air transport operations. Foreign airlines can participate in the companies’ equity by operating helicopter, seaplane and cargo airlines. Foreign airlines can also invest in Indian companies’ capital, operating both types of air transportations up to 49% of their total paid-up funds/capital.

Automobiles and Auto Components

Subject to provisions of the policies of Foreign Investment in India, foreign investment in the manufacturing ambit is still under automatic gateway. A manufacturer can sell its products manufactured in this country through retail or/and wholesale, including via e-commerce. It doesn’t need government approval. In healthcare, each phase of hospital construction comes under the fold of a separate project. The investor can make an exit after completing the project or after developing trunk infrastructure like sewerage, drainage, street lighting, water supply and roads. These projects should conform to the standards and norms, including land implementation requisites and provision of common facilities and community amenities.

The Prohibited Sectors

There cannot be any FDI Investment in India in sectors like lottery business, which includes online, private and government-sponsored lotteries. The other folds are betting and gambling, or casinos, Nidhi company, Chit funds, TDR or trading in transferable development rights, real estate business and/or farm house constructions, and manufacturing of cheroots, cigars, cigarettes and cigarillos of tobacco or substitutes of tobacco. There will be no FDI in sectors that aren’t open to private sector maneuvering or investment. These include railway operations and atomic energy. Exceptions in the railway sector fall under the consolidated FDI policy.

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