Foreign Direct Investment
The improved sentiment for the country's economic outlook backed by strong political mandate and fiscal reforms is expected to help India enhance its overall share in capital flows marked for emerging markets. Despite the global slowdown, India has managed to display resilience and attract good investments.
The foreign direct investment (FDI) inflows during 2008-09 (from April 2008 to March 2009) stood at approx. US$ 27.3 billion, according to the latest data released by Department of Policy and Promotion (DIPP). FDI inflows for the last quarter alone of 2008-09 stood at approx. US$ 6.2 billion.
Mauritius was the highest contributor to FDI inflows for the fiscal year 2008-09 totalling almost US$ 11.2 billion, while services sector including financial and non-financial services attracted the maximum amount of US$ 6.1 billion during the same period.
Further, India achieved a substantial 85.1 per cent increase in foreign direct investment flows in calendar year 2008—the highest increase across all countries—even as global flows declined by 14.5 per cent, as per an UNCTAD study –‘Assessing the impact of the current financial and economic crisis on global FDI flows’. The study also estimates that the FDI investments into India went up from US$ 25.1 billion in calendar 2007 to US$ 46.5 billion in calendar 2008. It also noted that some large emerging economies, such as Brazil, China and India, still remain favourable locations for FDI, particularly market-seeking FDI.
A trade facilitation body UK-India Business Council (UKIBC) survey has ranked Pune as the most suitable place for British investments in India. The survey report, titled ‘Opportunities for UK Plc in Emerging Cities in India’, also rated eight other cities—Ahmedabad, Chandigarh, Jaipur, Goa, Indore, Kochi, Nagpur and Vadodara—as the most conducive destinations for UK investments in India.
The Indian retail market, which is the fifth largest retail destination globally, has been ranked the most attractive emerging market for investment in the retail sector by A T Kearney's annual Global Retail Development Index (GRDI), in 2009. A recent Ernst & Young study predicts Mumbai and Bangalore to be the next global centres of investment along with Shanghai.
Government Initiatives
In India, currently after the policy changes in February 2009, many sectors in manufacturing are open to 100 per cent FDI under the automatic route. FDI is allowed up to 100 per cent in all these industries except defence production where it is capped at 26 per cent. FDI is not allowed in a few services including retail trading (except single brand), lottery business and gambling. In the permitted services, foreign equity is allowed below 50 per cent.
FDI is currently allowed only up to 49 per cent in scheduled air transport services or domestic passenger airlines. Broadcasting services also have similar rules. Uplinking of non-news television channels is the only broadcasting service permitted to have 100 per cent FDI after clearance by the Foreign Investment Promotion Board (FIPB). Majority foreign equity is not allowed in cable television networks and direct-to-home (DTH) operations. FDI is allowed only up to 26 per cent in print media.
FDI is allowed up to 74 per cent in financial services such as private banks. Insurance, however, can get FDI only up to 26 per cent. Minority foreign equity up to 49 per cent is permitted in asset reconstruction companies (ARCs), stock exchanges, depositories, clearing corporations and commodity. Except for ARCs, the FDI space is capped at 26 per cent for these sectors. In telecommunication services—both basic and cellular—although FDI up to 74 per cent is allowed, only 49 per cent is allowed under automatic route with the rest requiring approval from FIPB.
The new Commerce and Industry Minister, Mr Anand Sharma, has ruled out any “comprehensive” review of the new foreign direct investment (FDI) policy but said that the government will continue to study the pros and cons of the impact of the policy especially in retail sector. The Department of Economic Affairs (DEA) and the Reserve Bank of India (RBI) had recently commented on the implications of the new FDI norms mandated by Press Notes 2, 3 and 4, stating that review was required in certain restricted sectors like telecom and retail.
Investments Scenario
Among 23 FDI (foreign direct investment) proposals worth US$ 119.6 million cleared by the Government recently are Damas LLC’s (single-brand retail) plans to establish a joint venture company with Gitanjali Lifestyle Ltd for retail trading of jewellery and related accessories, Lazard India Mauritius’s FDI contribution of US$ 26.5 million, FT Singapore’s plans to make investment up to 100 per cent in the issued and paid-up capital of Financial Times India, FIM Bank, Malta (US$ 5.3 million FDI), Era Infra Engineering (US$ 7.4 million) and Hyatt Group company – HP India Holdings Ltd, Mauritius’s plans to establish hotels, in a joint venture with Emaar MGF for US$ 26.5 million.
As India does not allow FDI into multi-brand retail, mega US stores such as Wal-Mart have entered the country only for wholesale trading known as 'Cash and Carry'.
Hyatt Group Company – HP India Holdings has tied up with Emaar MGF to form ‘Aashirwad Conbuild Ltd’, which will have foreign equity at 26 per cent corresponding to an investment of US$ 26.5 million-US$ 31.8 million over the next five years, while the 74 per cent will be held by Indian partner.
The Bharti Wal-Mart joint venture has finally opened its first cash-and-carry store, nearly two years after announcing its plans, and intends to open 15 such wholesale stores in the next three years.
Two European retail majors, Tesco and Carrefour, have announced similar plans while the German group Metro has already established an Indian presence.
The entry of foreign companies into retailing has been restricted so far to single brand stores such as Reebok and Benetton.
Dow Jones & Co Inc is pumping in foreign direct investment of US$ 458,114 in setting up the wholly owned subsidiary in India.
Renault-Nissan Automotive India, a 50:50 joint venture floated for a passenger car project in Chennai, is eyeing 5.7 per cent of the market share in India by 2012, according to Colin Dodge, Executive Vice President, Nissan.
PepsiCo is doubling its investment in its Indian beverage business for calendar 2009 to over US$ 220 million to increase the capacity of the business.
Bosch will maintain its India focus and the company has recently made a commitment of US$ 27.1 million to set up manufacturing units for electronic control units (ECU).
The Road Ahead
With the government planning more liberalisation measures across a broad range of sectors and continued investor interest, the inflow of FDI into India is likely to further accelerate.
Exchange rate used:
1 USD = 47.15 INR (as on May 2009)
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