FOREIGN DIRECT INVESTMENT

Introduction

Foreign investments provide a great stimulus for growth to the Indian economy. The continuous

inflow of foreign direct investments (FDI), which is now allowed across several industries,

manifests the faith that foreign investors have in the country's economy.FDI inflows to India

increased 17 per cent in 2013 to reach US$ 28 billion, as per a United Nations report.

The Government of India's wise policy regime and a healthy business environment have also

ensured that foreign capital keep flowing into the country. The government has taken numerous

initiatives in recent years. For instance, in 2013, the Centre relaxed FDI norms in sectors such as

defence, PSU oil refineries, telecom, power exchanges and stock exchanges, among others.The

same year, established global players such as Tesco, Singapore Airlines and Etihad lined up to

invest in India as the government opened more sectors to overseas investment.

Market size

India received cumulative FDI inflows (including equity inflows, re-invested earnings and other

capital) of US$ 331,923 million during the period April 2000-May 2014, according to data

published by Department of Industrial Policy and Promotion (DIPP), Government of India.

Total FDI equity inflows in India (including amount remitted through RBI's-NRI Schemes)

during April 2000-May 2014 stood at US$ 222,890 million.

Singapore led the share of top investing countries by FDI equity inflows into India with US$

5,985 million during FY 14, followed by Mauritius (US$ 4,859 million), the UK (US$ 3,215

million) and the Netherlands (US$ 2,270 million).

The services sector attracted the highest FDI equity inflows in FY14 with US$ 2,225 million,

followed by the construction development(US$ 1,226 million) and telecommunication(US$

1,307 million) industries.

Investments

Norway's Telenor Group plans to invest an additional Rs 780 crore (US$ 129.79 million) to

increase its ownership in Indian subsidiary Uninor to 100 per cent; Telenor currently owns a 74

per cent stake in Uninor. "Continuing its long-term commitment to India, Telenor Group has

filed to take complete ownership of its Indian business unit. An application has been filed with

the Foreign Investment Promotion Board (FIPB) of the Government of India, seeking approval

for an additional investment of Rs 780 crore (US$ 129.79 million) to raise ownership in Uninor

to 100 per cent," as per a company statement.

Chinese telecom equipment maker ZTE Corporation plans to establish a Global Network

Operating Centre (GNOC) in India. The centre will seek to manage the networks of multiple

telecom carriers in Asia and Africa. "ZTE is in discussions with several telecom operators in

Indonesia, Malaysia and Nigeria to manage their networks from a future GNOC in India for both

fixed line as well as wireless networks," said MrXu Huijun, Senior Vice-President - Wireless

Business, ZTE Corporation.

Japan's Suzuki Motor Corporation (SMC), the parent company of Maruti Suzuki, will spend Rs

18,500 crore (US$ 3.07 billion) to establish a new factory in Gujarat. SMC plans to establish a

100 per cent subsidiary, Suzuki Motor Gujarat (SMG), to manufacture cars on a strictly no-loss,

no-profit basis for Maruti Suzuki.

US-based Leapfrog Investment has bought a minority stake in Chennai-based financial services

provider IFMR Capital Finance for US$ 29 million. IFMR aids small businesses, microfinance

firms, commercial vehicle financiers and affordable housing companies raise money on the debt

markets. This marks Leapfrog's third investment in India, after having earlier backed insurance

distribution firm Mahindra Insurance Brokers and Shriram CCL.

Government Initiatives

The Reserve Bank of India (RBI) has allowed overseas investors, including foreign portfolio

investors (FPIs) and non-resident Indians (NRIs), to invest up to 26 per cent in insurance and

related activities via the automatic route. "Effective from February 4, 2014, foreign investment

by way of FDI, investment by foreign institutional investors (FIIs)/FPIs and NRIs up to 26 per

cent under automatic route shall be permitted in insurance sector," as per the RBI.

The RBI has allowed a number of foreign investors to invest, on repatriation basis, in non-

convertible/ redeemable preference shares or debentures which are issued by Indian companies

and are listed on established stock exchanges in the country. The investment will be within the

overall limit of US$ 51 billion allocated for corporate debt. Long-term investors who are

registered with Securities and Exchange Board of India (SEBI) will also be deemed as eligible

investors.

In an effort to bring in more investments into debt and equity markets, the RBI has established a

framework for investments which allowsFPIs to take part in open offers, buyback of securities

and disinvestment of shares by the Central or State governments. Under a new scheme named

'Foreign Portfolio Investment', the RBI said portfolio investors, which includes FIIs and qualified

foreign investors (QFIs) registered as per SEBI guidelines, will be called registered foreign

portfolio investors (RFPIs).

Road Ahead

Foreign investment inflows are anticipated to more than double and breach the US$ 60 billion

mark in FY 15 as foreign investors show more confidence in India's new government, as per an

industry study. "Riding on huge expectations from the incoming Modi government, global

investors are gung ho on the Indian economy which is expected to witness over 100 per cent

increase in foreign investment inflows - both FDI and FIIs - to above US$ 60 billion in the

current financial year, as against US$ 29 billion during 2013-14," as per the study.

The country will require around US $1 trillion in the 12th Five-Year Plan (2012-17), to fund

infrastructure growth covering sectors such as highways, ports and airways. This necessitates

substantial support in terms of FDI. In 2013, FDI was witnessed in sectors such as automobiles,

chemicals, computer software and hardware, construction development, pharmaceuticals, power,

services, and telecommunications. France, Germany, Japan, Mauritius, the Netherlands,

Singapore, the UK, and UAE invested in India during that year.