FDI

WHAT IS FDI ??

Foreign direct investment (FDI) is direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

 Foreign direct investment can take on many forms and so sometimes the term is used to refer to different kinds of investment activity. Commonly foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intracompany loans.

IMPORTANCE OF FDI:-

The rapid growth of world population since 1950 has occurred mostly in developing countries. This growth has not been matched by similar increases in per-capita income and access to the basics of modern life, like education, health care, or - for too many - even sanitary water and waste disposal.

FDI has proven — when skillfully applied — to be one of the fastest means of, with the highest impact on, development. However, given its many benefits for both investing firms and hosting countries, and the large jumps in development were best practices followed, eking out advances with even moderate long-term impacts often has been a struggle. Recently, research and practice are finding ways to make FDI more assured and beneficial by continually engaging with local realities, adjusting contracts and reconfiguring policies as blockages and openings emerge.

DIFFICULTIES LIMITING FDI:-

Foreign direct investment may be politically controversial or difficult because it partly reverses previous policies intended to protect the growth of local investment or of infant industries. When these kinds of barriers against outside investment seem to have not worked sufficiently, it can be politically expedient for a host country to open a small "tunnel" as a focus for FDI.

The nature of the FDI tunnel depends on the country's or jurisdiction's needs and policies. FDI is not restricted to developing countries. For example, lagging regions in the France, Germany, Ireland, and USA have for a half century maintained offices to recruit and incentivize FDI primarily to create jobs. China, starting in 1979, promoted FDI primarily to import modernizing technology, and also to leverage and uplift its huge pool of rural workers.

ADVANTAGES OF FDI IN INDIA:-

In the early 1990s, Government of India made several changes in the economic policy of the country. This helped in the liberalization & deregulation of the Indian economy while also opening the country’s markets to foreign direct investment.

Due to this, large amounts of foreign direct investment came into India through international companies, non- resident Indians, and various other foreign investors. This in turn boosted the economic growth of India.

MAJOR ADVANTAGES OF FDI IN INDIA HAVE BEEN IN TERMS OF  :-

• Increased capital flow.

• Improved technology.

• Management expertise.

• Access to the international markets.

AMOUNT OF FOREIGN DIRECT INVESTMENT IN INDIA :-

The total amount of FDI in India was around US$ 42.3 billion in year 2001. In 2002 this figure became US$ 54.1 billion; in 2003 this figure was US$ 75.4 billion, while in 2004 the figure increased to US$ 113 billion. This indicates that the flow of foreign direct investment in India has rapidly grown over the last few years. Different forms of foreign capital flowing into India include investments in commercial banks of India, NRI deposits and investments in country’s debt & stock markets.

FDI IN MAJOR SECTORS IN INDIA :-

Major sectors of the Indian economy which have benefited from FDI in India are:-

• Financial sector (Banking and Non-Banking).

• Insurance

• Telecommunication

• Hospitality and tourism

• Pharmaceuticals

• Software and Information Technology

FDI IN RETAIL:-

Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its GDP. The Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail market in the world, with 1.2 billion people.

India's retailing industry is essentially owner manned small shops. In 2010, larger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centers. India's retail and logistics industry employs about 40 million Indians (3.3% of Indian population).

Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic process.

In November 2011, India's central government announced retail reforms for both multi-brand stores and single-brand stores. These market reforms paved the way for retail innovation and competition with multi-brand retailers such as Walmart, Carrefour and Tesco, as well single brand majors such as IKEA, Nike, and Apple.The announcement sparked intense activism, both in opposition and in support of the reforms. In December 2011, under pressure from the opposition, Indian government placed the retail reforms on hold till it reaches a consensus.[6]
In January 2012, India approved reforms for single-brand stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership, but imposed the requirement that the single brand retailer source 30 percent of its goods from India. Indian government continues the hold on retail reforms for multi-brand stores.

In June 2012, IKEA announced it has applied for permission to invest $1.9 billion in India and set up 25 retail stores. Fitch believes that the 30 percent requirement is likely to significantly delay if not prevent most single brand majors from Europe, USA and Japan from opening stores and creating associated jobs in India.

On 14 September 2012, the government of India announced the opening of FDI in multi-brand retail, subject to approvals by individual states.This decision has been welcomed by economists and the markets, however has caused protests and an upheaval in India's central government's political coalition structure. On 20 September 2012, the Government of India formally notified the FDI reforms for single and multi brand retail, thereby making it effective under Indian law.

On 7 December 2012, the Federal Government of India allowed 51% FDI in multi-brand retail in India. The Feds managed to get the approval of multi-brand retail in the parliament despite heavy uproar from the opposition. Some states will allow foreign supermarkets like Walmart, Tesco and Carrefour to open while other states will not.

Wishing you all MERRY CHRISTMAS :)

AAKASH GUPTA