Progressive liberalisation to permit FDI in most sectors gives high dividend.
At the BRICS (Brazil, Russia, India, China and South Africa) summit a few days ago,
Prime Minister Narendra Modi bragged that India is now one of the most open
economies in the world. It is true and facts show it. A major achievement of the Modi
government was Foreign Direct Investment (FDI) reforms as a result of which India was
the largest recipient of FDI in the world, especially in the last two years, 2015-16 and
2016-17. Despite the low private investment, FDI, along with public investment played
an important role in the investment cycle, that helped the Indian economy to grow at
Inflow of FDI increased from $43.6 billion 2013-14 to $51.8 billion in 2014-15, to $ 59.5
billion in 2015-16 and to $60 billion in 2016-17. In the first three months of 2017-18, FDI
inflow to India was a robust $14.5 billion.
According to research body fDi intelligence, India retained its top FDI investment
destination rank for the second consecutive year in 2016, attracting $62.3 billion. China
was in the second spot with $59 billion and followed by the United States with $48
This indeed is a great achievement in a span of only three years. The scale of reforms
can be gauged from the fact that during this period, 21 sectors covering 87 areas of FDI
policy have undergone reforms.
Through a raft of reforms unleashed, India allowed FDI up to 49% on automatic route in
the defence sector, 49% in insurance and pension sectors under automatic route
instead of earlier up to 26% and 74% FDI in pharma on automatic route and beyond it
to 100% on approval route. It also allowed 100% FDI in civil aviation (under automatic
route in brownfield airport projects), animal husbandry, pisciculture, aquaculture,
apiculture, single brand retail trading (local sourcing norms has been relaxed for up to 3
years and a relaxed sourcing regime for another five years), broadcasting carriage
services, teleports, DTH, mobile TV and HITS sectors. In plantation, FDI up to 100% is
allowed on automatic route in coffee, rubber, cardamom, palm oil tree and olive oil tree
Plantations in addition to tea plantations.
India has emerged as a favourite destination for global investors as they are gravitating
to locations experiencing the strongest economic growth compared to other emerging
countries such as Brazil and Russia, which are facing a recession or facing high levels
of uncertainty. Further, investors in developed countries are flush with money due to
their country’s easy monetary policies to stimulate demand and growth. India’s strong
macro-economic fundamentals – high economic growth, low inflation, low current
account deficit and comfortable foreign exchange reserves – worked as additional
layers of comfort for investors.
The FDI liberalization in India was so wide in scope that there is very little now left for
opening up, except sprucing up procedures. India also abolished the Foreign
Investment Promotion Board (FIPB), an inter-ministerial body working as a single
window clearance mechanism, to promote ease of doing business.