India’s rank on the table of Foreign Direct Investment in the world is improving, and the credit for this improvement goes to the foreign policy changes made by the Indian government.
Foreign Direct Investment comes from foreign countries, but it isn’t as simple as it sounds. Every country allows FDI but with specific rules and regulations. It involves the transfer of technology that requires building the necessary infrastructure in the host country and training the employees. India has its own rules for allowing FDI.
How Does India Get FDI?
India has the vast potential to accommodate investment in its economy. The country has identified open sectors for foreign investors. These include civil aviation, mining, satellite, print media, telecommunications, banking, pharmaceuticals, private security and other sectors as decided by the government. Also, the government has set a cap on foreign investment so that it does not stifle domestic investors.
India Brand Equity Foundation (IBEF) provides detailed information on foreign investment policy in India. It is a government trust established to promote and create international awareness about India as a preferred investment destination for foreign investors.
Foreign investors can invest in the country following two routes:
Automatic Route: Investors coming through this route, are exempted from any permission or approval from the Reserve Bank of India or any department of the Government of India. They can invest directly in any sector opened for foreign investment.
Government Route: As the name suggests, this route requires permission and approval from government departments through the Foreign Investment Facilitation Portal. Currently, the Government of India allows foreign investment in 12 sectors, with each sector controlled by a ministry.
India provides Foreign Direct Investment opportunities in all essential sectors including mining and telecom. As per the latest data, Singapore invested $15.9 billion in FY2012, which accounts for 27% of the total FDI India received. The US is the second largest investor, with an investment of $10.5 billion. Mauritius is the third largest investor, with an investment of $9.4 billion.
The breakdown of all FDI shows that the IT industry, especially software and hardware, has received the maximum investment of $14.5 billion or 24.6% of the total investment, followed by the services sector at $7.1 billion (12.1%), the automobile industry $7.0 billion (11.9%), trading $4.5 billion (7.7%), and Infrastructure construction $3.2 billion (5.5%).
India Brand Equity Foundation (IBEF) is working hard to educate foreign investors about investment opportunities and FDI policy in India. This premier organization has been running a concerted marketing campaign to attract foreign investors to the country and it has been successful in its endeavours. Whatever foreign investment the country has received in recent years is due to the sincere and sincere efforts of IBEF.
Types Of Foreign Investments In India
There are mainly two types of FDIs – horizontal and vertical, but the government has allowed more investors to come to the country by opening more sectors and relaxing restrictions.
Horizontal: A business expands its inland operation to a foreign country. It provides the same services but on foreign soil and to foreign customers. It is the most common type of foreign investment.
Vertical: A business expands to a foreign country but with a different level of the supply chain. Its foreign activities may be separate from its core business but are related to the core business.
Conglomerate: A business expands to a foreign country and starts activities unrelated to its core business. This type of FDI is rare as it involves the risks of penetrating a foreign market with a new idea.
Platform: A business expands to a foreign country but uses the resources to support its activities in a third country.
India was ranked 15th in the world ranking in FDI in 2013, but in 2014 it moved up to 9th position. And in 2015, it became the most preferred destination for foreign investors. The credit for enhancing India position in the world FDI table goes to its foreign investment policy. The country has seen several policy changes to improve its rank.
Reasons For Foreign Investors Coming To India
1. Vast Area
India is a vast country with diverse geography including mountains, woods, plains, plateaus, coastal areas, and much more. And these areas are rich sources of natural elements like minerals, oil and gas, forest product, and the maritime industry. This country has the potential to attract foreign investment in each sector.
2. Workforce
India has a large workforce that can support and strengthen foreign investments. They can be trained to work on specific technologies. Foreign investors coming to India can easily find skilled labor for their services. The availability of a skilled workforce adds value to Foreign Direct Investment opportunities.
3. Infrastructure
India has developed a vast network of roads, rails, and air services. Also, the country has improved its waterways to strengthen goods transport across the length and breadth of the country. Also, the nation has electrified its rural areas to support small-scale industries. In short, foreign investors need not worry about the basic facilities needed to start working.
4. Sectors
The foreign investment policy in India guides foreign investors to sectors that require investment. In this way, the country maintains a good balance between development and competition. Also, the nation is opening more sectors for foreign investors. And it won’t be an exaggeration to say that India provides more opportunities to investors.
5. Friendly Policies
India is an investor-friendly country, and it is evident from its policies that favour investors. For example, take the IBEF which operates as a government agency deployed to attract and educate foreign investors. It is a one-stop solution for all FDI-related needs. Investors can get answers to all their queries from the website of IBEF. Also, you must know How Is India Developing Its Renewable Energy Resources