FDI INVESTMENTS: ECONOMY

FDI INVESTMENTS: ECONOMY

NEWS: India offers a transparent, predictable and comprehensive FDI Policy Framework for investments

 

WHAT’S IN THE NEWS?

The Indian government has established a transparent and liberalized FDI policy framework to attract foreign investment, enhance economic growth, and boost infrastructure, technology, and employment generation. Recent reforms include raising FDI limits in insurance and implementing PLI schemes to strengthen India's business ecosystem.

 

Key Aspects of India's FDI Policy

1. Definition & Prohibited Sectors

  • FDI involves foreign investments in a country’s enterprises, leading to ownership or control.
  • Prohibited in lottery, gambling, chit funds, Nidhi companies, real estate business, and tobacco-based product manufacturing.

2. Routes for FDI in India

  • Automatic Route: No prior approval needed; RBI must be informed post-investment.
  • Government Approval Route: Requires prior approval from the respective Ministry/Department (e.g., telecom, media, insurance).

3. Key Features of the FDI Policy Framework

  • Automatic Route Dominance: Over 90% of FDI inflows occur through this route.
  • Sectoral Liberalization: Defence, insurance (now 100%), petroleum, telecom, and space sectors have witnessed policy relaxations.
  • Competitive Federalism: Business rankings like BRAP, LEADS, and the Investment Friendliness Index encourage healthy competition among states.

4. Importance of FDI

  • Balance of Payments (BoP): Helps bridge the current account deficit.
  • Currency Stability: Strengthens the rupee in global markets.
  • Technology Transfer: Enhances productivity and competitiveness.
  • Multiplier Effects: Leads to increased employment, exports, and overall economic growth.

5. Government Initiatives to Boost FDI

  • Liberalized FDI Limits: Defence (74%), Insurance (100%), Single-Brand Retail (100%).
  • Production-Linked Incentive (PLI) Schemes: Attracts investments in electronics, pharma, textiles, automobiles, etc.
  • Infrastructure Development: Programs like Gati Shakti, Bharatmala, and Sagarmala improve logistics and connectivity.
  • Digital Ecosystem: Strengthening digital payments and governance for ease of doing business.

6. Way Forward

  • Infrastructure Investment: Ensure timely execution of capital expenditure projects.
  • Workforce Skilling: Collaborate with industries to enhance workforce capabilities.
  • Strengthen R&D and Innovation: Encourage research to boost sectoral productivity.

 

Source: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2101785#:~:text=To%20promote%20FDI%2C%20the%20Government,received%20under%20the%20automatic%20route.