The Union Cabinet has recently sanctioned a proposal to review Foreign Direct Investment (FDI) across various sectors. The move is aimed at enhancing India’s attractiveness as an FDI destination, resulting in increased investments, employment and overall economic growth. As per the latest reports (March 2019), Singapore tops the list as the most significant contributor to FDI in India, surpassing Mauritius by a factor of two.
Revised Norms for FDI and their Impact
According to the revised norms, 100% FDI under the automatic route is now allowed in the coal sector, including coal mining activities and associated processing infrastructure. The government has also permitted 100% FDI via the automatic route for contract manufacturing. This major move is expected to boost the Make in India initiative, attracting global companies to establish alternative manufacturing hubs in India.
Contract Manufacturing: An Overview and Benefits
Contract manufacturing refers to a business model where firms outsource their product manufacturing process to third-party manufacturers. This model offers multiple benefits. Companies can save on capital and labor costs as they are no longer responsible for facility management and equipment purchase. Some firms may opt to contract manufacturing in low-cost countries like India to further cut production costs. It also allows businesses to leverage advanced skills or technologies that the contract manufacturer might possess. Moreover, it permits companies to focus better on their core competencies by offloading primary production to another company. Contract Manufacturers, due to their association with various clients, can help in reduced costs of raw materials due to economies of scale.
Relaxing FDI Norms in Single Brand Retail Trading (SBRT)
The Union Cabinet has eased the FDI norms in SBRT. According to the new rules, retail trading through online channels can be initiated before launching brick-and-mortar stores, which should be opened within two years from the start of online retail. This move will trigger job creation in logistics, digital payments, customer care, training and product skilling.
| Sector | FDI Inflow (2014-19) |
|---|---|
| Defence | $12 billion |
| Construction Development | $25 billion |
| Trading | $30 billion |
| Pharmaceuticals | $18 billion |
| Power Exchanges | $15 billion |
Liberalizing FDI Policy: An Increasingly Attractive Investment Destination
In recent years, FDI policy provisions have been progressively liberalized across various sectors in India to make the nation an attractive investment destination. Some of these sectors include Defence, Construction Development, Trading, Pharmaceuticals, Power Exchanges, Insurance, Pension, Other Financial Services, Broadcasting, and Civil Aviation. These measures have resulted in a total FDI inflow into India of $286 billion from 2014-15 to 2018-19. Despite the grim global economic prediction as per UNCTAD’s World Investment Report 2019, India continues to remain a preferred and attractive destination for global FDI flows. The country aims to use this potential to attract a larger fraction of foreign investment, an objective achievable by further liberalization and simplification of the FDI policy regime.
Foreign Direct Investment (FDI): A Brief
Foreign direct investment (FDI) is an investment made by a party in one country into a business or corporation in another country with the intent of establishing a lasting interest. This differentiates FDI from foreign portfolio investments, where investors passively hold securities from a foreign country. FDI can be made either by expanding one’s business into a foreign country or by becoming the owner of a company in another country.
Last Modified: February 6, 2024