Foreign Direct Investment is a critical driver of economic growth. Foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India. By investing in India Foreign companies take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. FDI also generates a credibility for an Investor as it creates employability opportunity for developing and underdeveloped nations. For a country where foreign investments are being made, it also means achieving technical know-how to do business in a new geographical, political situation.
Foreign Direct Investment in India
The Indian government’s favourable policy regime and robust business environment have ensured capital flow from foreign into the country. The government has taken many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges, among others.
FDI Market size
As per Department of Industrial Policy and Promotion (DIPP), the total FDI investments in India during April-December 2017 was US$ 35.94 billion. This is a result of government’s effort to improve ease of doing business and relaxation in FDI norms. The season April-December 2017 attracted the highest FDI equity inflow of US$ 6.14 billion from the telecommunications sector, followed by computer software and hardware – US$ 5.16 billion and services – US$ 4.62 billion. The total FDI equity inflows for the month of December 2017 touched US$ 4.82 billion. During the period of April-December 2017, India received the maximum FDI equity inflows from Mauritius (US$ 13.35 billion), followed by Singapore (US$ 9.21 billion), Netherlands (US$ 2.38 billion), USA (US$ 1.74 billion), and Japan (US$ 1.26 billion). Mr Anil Sinha, An advisor for Global Impact Investing Network for South Asia has approximately estimated that the Investment quota can increase by 25% annually.
KPMG one of the leading consulting firm has reported India to be one of the fastest growing investment destinations for foreign investors in 2016, led by an increase in investments in real estate and infrastructure sectors from Canada.
Some of the recent significant FDI announcements are as follows:
In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 million) in the state of Maharashtra to set up multi-format stores and experience centres. Swedish home furnishing major Ikea has opened an Rs 100-crore distribution centre in Pune and is also scouting for land in Bengaluru and Gurgaon. Ikea India plans to set up 25 stores by 2025, investing Rs 10,500 crore. The company has so far hired 100 people for its distribution operations in Pune and is looking to employ at least 200 more there.
In November 2017, 39 MoUs were signed for an investment of Rs 4,000-5,000 crore (US$ 612-765 million) in the state of North-East region of India.
In December 2017, the Department of Industrial Policy and Promotion (DIPP) approved FDI proposals of Damro Furniture and Supr Infotech Solutions in the retail sector, while Department of Economic Affairs, Ministry of Finance approved two FDI proposals worth Rs 532 crore (US$ 81.4 million). Damro Furniture would undertake single brand retail trading of ‘Damro’ branded products in India, according to the DIPP’s Foreign Investment Facilitation portal. The company had proposed to invest Rs 402 crore. Supr Infotech Solutions will carry out food product retail trading of milk and other daily need products. The firm proposes to invest Rs 10.85 crore.
The Department of Economic Affairs, Government of India, closed three foreign direct investment (FDI) proposals leading to a total foreign investment worth Rs 24.56 crore (US$ 3.80 million) in October 2017.
France-based energy firm, Engie SA and Dubai-based private equity (PE) firm Abraaj Group have entered into a partnership for setting up a wind power platform in India. Together, Abraaj and Engie have identified a robust pipeline of wind power projects representing over 1 GW (gigawatt). The NDA government has set an ambitious clean energy target of 175GW by 2022. Of this, 100GW is to be generated by solar projects and 60GW by wind projects.
US-based footwear company, Skechers, is planning to add 400-500 more exclusive outlets in India over the next five years and also to launch its apparel and accessories collection in India. The company clocked Rs 220 crore in revenues in the last calendar year.
The government has approved five Foreign Direct Investment (FDI) proposals from Oppo Mobiles India, Louis Vuitton Malletier, Chumbak Design, Daniel Wellington AB and Actoserba Active Wholesale Pvt Ltd, according to Department of Industrial Policy and Promotion (DIPP).
Cumulative equity foreign direct investment (FDI) inflows in India increased 40 percent to reach US$ 114.4 billion between FY 2015-16 and FY 2016-17, as against US$ 81.8 billion between FY 2011-12 and FY 2013-14.
Walmart India Pvt Ltd, the Indian arm of the largest global retailer, is planning to set up 30 new stores in India over the coming three years. Walmart acquired Flipkart for US$ 16 billion.
US-based e-commerce giant, Amazon, has invested about US$ 1 billion in its Indian arm so far in 2017, taking its total investment in its business in India to US$ 2.7 billion.
Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$ 155.97 million) in India by 2020 in its food and beverage business, stated Mr. Varun Choudhary, Executive Director, CG Corp Global. The firm is known for its Wai Wai noodles brand. It has set up a production unit at Rajasthan with an investment of Rs 250 crore to support its plan of becoming a full-fledged F&B player. It has started a chain of restaurants – Wai Wai City – in Delhi, Noida, Pune, Bengaluru and Siliguri over the past few months and plans to take the number of outlets to 500 by 2020.
International Finance Corporation (IFC), is planning to invest about US$ 6 billion through 2022 in several sustainable and renewable energy programmes in India.
SAIC Motor Corporation is planning to enter India’s automobile market and begin operations in 2019 by setting up a fully-owned car manufacturing facility in India. SAIC Motor envisions to deliver environment-friendly mobility solutions under the iconic ‘MG’ (Morris Garages) brand.
SoftBank is planning to invest its new US$ 100 billion technology fund in market leaders in each market segment in India as it seeks to begin its third round of investments.
In September 2017, the GOI emphasized the states to focus on strengthening single window clearance system for fast-track approval processes, in order to increase investments in India. The Ministry of Commerce and Industry, GOI has eased the approval mechanism for foreign direct investment (FDI) proposals by doing away with the approval of Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks after the receipt of application. India and Japan have joined hands for infrastructure development in India’s north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast.
The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in defence under the automatic route to 51% from 49%, in order to give a boost to the Make in India initiative and generate employment. In January 2018, 100% FDI was allowed in single brand retail through automatic route along with relaxations in rules in other areas.
India has become the most attractive emerging market for global partners (GP) investment for the coming 12 months, as per a recent market attractiveness survey conducted by Emerging Market Private Equity Association (EMPEA). The World Bank has stated that private investments in India are expected to grow by 8.8% in FY 2018-19 to overtake private consumption growth of 7.4%, and thereby drive the growth in India’s gross domestic product (GDP) in FY 2018-19.