Foreign Direct Investments

Introduction:

Trade and Commerce in India with other countries dates back to bronze phase ie, 3^rd Century B.C. In Ancient India, foreign trade sprouted near Sindh Valley region and flourished till 6^th Century B.C. After the dawn of Mauryan Dynasty, foreign trade in India deeply rooted to other countries.

TamilNadu was not an exception to foreign trade. In 900A.D, RajaRaja Chozha had extensive foreign business connections with Burma, Malaysia, Sri Lanka, Thailand and few European countries. Even now one can see the sculptures of English Man and Lady with their costumes including shirt, hat, pen and skirt in Lord Bragatheeswara Temple at Tanjore. This clearly portrays that foreign people visited the kingdom of RajaRajaChozha. He believed that foreign trade was a strong economic factor for the growth of his kingdom.

India was a colonial country under British Regime for more than 200 years Soon after India became independent, economic policies were formulated to boost indigenous production and to curtail Imports. Therefore a complex web of controls were imposed for all external transactions through Foreign Exchange Regulation Act,1947. Again 1947 Act was enacted in 1973 with more rigorous provisions.

In 1991, Liberalization policies were introduced in India. Despite such Liberalization, Investment Climate in India was not so friendly to global investors. The reason was obvious. FERA, 1973 was highly incompatible with the pro-liberalization policies of Government of India. These shortcomings opened the way for a new legislature and Foreign Exchange Management Act, 1999(FEMA) was promulgated. With the introduction of FEMA 1999, we ushered in to a less – fearsome and liberalized era for foreign trade.

At Present India developed a very comprehensive and open policy towards Foreign Direct Investment. Since the inception of economic liberalization, substantive reforms had been initiated in the field of Investment Trade, Financial Sectors, Exchange Control Procedure and Intellectual Property Rights etc.

The article is focusing on the need for FDI’s in India, its process of entry, a brief statistical outlook on FDI’s , and future prospects of FDI’s in India.

FEMA 1999 :

Whenever an Act is introduced, it will come in to force immediately from the year of enactment. Contrary to this principle it came in to force w.e.f.1.6.2000. The act extends to whole of India including Jammu and Kashmir. The objective of the act is to consolidate foreign exchange and to regulate external trade and payments to promote orderly development and maintenance of foreign exchange market in India. The FEMA is governed by RBI which makes amendments and issues circulars from time to time to facilitate foreign trade requirements.

FDI – An Insight:

The promising avenues of capital inflows in to India, Foreign Direct Investments (FDI’S) and Foreign Institutional Investors (FII’S) are considered to be the prospective channels focused ultimately on the growth of our economy. The changing scenario on FDI has accumulated the potentials in various dimensions such as, to generate employment, incorporating latest and new technology, immense productivity, enhance export activities and moreover contributing to the long term economic development of worlds rapidly developing countries.

FDI means “Investment made to acquire lasting Interest in enterprises operating outside the economy of the investor.”

FDI exists, when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intention to manage the asset. FDI paves the gateway for rich and developed countries and multinational companies to invest in various sectors.

Need for Foreign Direct Investments in India :

Capital Inflows through FDI Channel will sustain the growth of the economy and it has a direct macroeconomic link to the Gross Domestic Product. Our Government of India has relaxed the Policies and Procedures which in turn resulted in increase of FDI ‘ s . Over the years India’s GDP growth accelerated to an average of 9.3% during the three years ending 31^st March, 2008 as compared with an average estimated at 6.6 % and 6 % in the preceding three and five years.

How to invest in India?

Eligibility Criteria:

i) A person resident outside India ( other than a citizen of Pakistan ) or an entity incorporated outside India ( other than entity incorporated in Pakistan ) can invest in India subject to the FDI Policy of the Government of India. A person who is a citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI Scheme, with prior approval Foreign Investment Promotion Board ( FIPB ):

ii) Eligibility to Overseas Corporate Bodies ( OCB’s ) incorporated outside India, with obtaining approval from RBI can make fresh investments under FDI as Incorporated Non- Resident entities, with prior approval of Government if the investment is through Government Route.

Entry:

Automatic Route:

Investments can be made in all areas which are otherwise not reserved exclusively for the public sectors. Foreign investments in any form are prohibited which is engaged or proposes to engage in the following activities:

Ø Business Chit Fund or,

Ø Nidhi company or ,

Ø Agricultural or plantation activities or,

Ø Real Estate Business or construction of farm houses,

Ø Trading in Transferable Development Rights ( TDR’S)

Apart from the above, investment in form of FDI is prohibited in the following sectors,

Ø Business in nature of Gambling or Betting,

Ø Retail Trading ( Except Single brand product retailing)

Ø Atomic Energy,

Ø Lottery Business,

Ø Housing and Real Estate Business,

Ø Agricultural and Plantations( Tea Plantations),

Ø Sector not opened to private sector investment.

The policies again reviewed during the year to relax the norms for sectors such as aviation, commodity exchanges, petroleum, credit information bureau, industrial parks and titanium mining.

Approval Route / FIPB Route:

An investment in form of FDI not covered under automatic route requires prior Government approval and has to be considered by FIPB (Foreign Investment Promotion Board). It was set up by Ministry of finance to promote the capital inflows of FDI in to the country and to provide guidelines for investment promotions, appropriate institutional arrangements, proposals for foreign investment.

India and FDI – A Glimpse over the Statistics:

With the enactment of FEMA (Foreign Exchange Management Act,1999), India had witnessed an enormous growth in the development of economy. Investment in FDI (Foreign Direct Investment) by global corporate had indeed appreciated the GDP (Gross Domestic Product) to a promising level.

FDI Aggressive Investment Plans:

Before Global Crisis, the surging economy resulted in India emerged as the fastest growing market for many global corporate. This positive growth outlived a breakthrough for global corporate to line up aggressive plans to invest in India. It will enhance the capital inflows in to our economy and ensures a pathway to become a super powered nation with a promising GDP level in the days to come. Following companies listed below are the few proposals to come to India in form of FDI

Ø Federal Modugal, Auto Parts Company will be investing US $ 15.12 Million for setting up a manufacturing facility for seal products.

Ø Toyoya Kirloskar Motors (P) Ltd (TKM), plans to invest US $ 313.26 Million for its second plant for manufacturing cars.

Ø Footwear retail company, Pavers England Foot Print, has plans to invest US $ 10 Million for setting up over 1000 stores in India by 2013.

Ø PepsiCo Plans a US $ 500 Million investment in India taking its total investment over US $ 1 Billion.

(Source: WWW.IBEF.ORG)

FDI Looking Ahead:

In current scenario, the financial crisis melt down the global economy as a whole and moreover, on 7^th Jan 2009, India faced a massive setback in the field of Information Technology, owing to the historical fraud committed by Satyam Computers chairman Ramalinga Raju as the books of accounts of the company were fudged for the past few years to inflate the profit level to crawl high. The intention was to explicit as a flourishing corporate amongst the public. Ultimately, this scandal had devastated the India’s growth overall at the global level. Notwithstanding the ravages of Satyam’s fraud, it was the onerous responsibility of our government to implant various measures to safeguard the foreign investors. With adopting more liberalization policies to refine the capital inflows for various sectors of foreign investments the inflow of FDI in to India is likely to further accelerate.

India being a developing country backed up with a large pool of technically skilled man power and capability to overcome any setbacks, the days are not longer for India to become a pedagogue and a guiding beacon for all the developing nations to make Foreign Direct Investments attractive in the days to come.