Indian Economy

Foreign direct investment is investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset.

Types of FDI
There are two types of FDI:

• Greenfield investment : It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries.
• Mergers and Acquisition : It occurs when a transfer of existing assets from local firms takes place.

Forbidden Territories:
FDI is not permitted in the following industrial sectors:

• Arms and ammunition.
• Atomic Energy.
• Railway Transport.
• Coal and lignite.
• Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.

Investment in India
Government of India recognizes the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices. The Government of India has put in place a liberal and transparent FDI policy.

FDI up to 100% is allowed under the automatic route in most sectors/activities. FDI policy in India is reckoned to be among the most liberal in emerging economies. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI.

• India is now the third most favoured destination for Foreign Direct Investment (FDI), behind China and the USA, according to an AT Kearney survey that tracked investor confidence among global executives to determine their order of preferences.
• India’s share of global FDI flows rose from 1.8 per cent in 1996 to 2.2 per cent in 1997.
• FDI in India in 1997-98 was lower at U.S.$ 5,025 million compared to U.S.$ 6,008 million in 1996-97 because of a decline in portfolio investment. Although foreign direct investment (FDI) increased by 18.6 per cent from U.S.$ 2,696 million in 1996-97 to U.S.$ 3,197 million in 1997- 98
• International developments continue to affect capital flows into India in 1998-99 as well.
• Mauritius, as in the previous two years, was the dominant source of FDI inflows in 1997- 98. U.S.A. and S. Korea were, respectively, the second and third largest sources of FDI.
• S. Korea increased its flow of investment in India from a meagre U.S.$ 6.3 million in 1996-97 (0.2 per cent of total FDI) to U.S.$ 333.1 million in 1997-98 (10.4 per cent share).
• There has been a sharp rise in the number of FDIs approved in 2004.
• During the first seven months of 2004, between January and July, Rs 5,220 crore worth of FDI was approved.
• Almost a third share of the investment in India is by NRI.
• According to the latest Reserve Bank of India figures, outflows through various NRI deposits schemes amounted to $903 million since May 2004, as against net inflows of $1.2 billion in the corresponding period last year.