FDI & FII

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Foreign Direct Investment (FDI)

The economic development witnessed during the past two decades in India rests to a great extent on Foreign Direct Investment (FDI). FDI has been a vital non-debt financial force be-hind the economic upsurge in India. Special investment vantages like cheap cost wages and tax exemptions on the amount being invested attract foreign companies to invest in India. FDI in India is done across a wide range of industries and its relentless influx reflects the tremendous scope, faith and trust that foreign investors have in the Indian economy.

To ensure an uninterrupted inflow of FDI in India, the Indian government has created condu-cive trade atmosphere and effective business policy measures in place. This strategy is re-flected in the steps taken by the government, such as easing out the restrictions levied on sectors like stock exchanges, power exchanges, defence, and PSU oil refineries to name a few.

Advantages of FDI in India

There are several benefits of increasing foreign direct investment in India. First of all, with more FDI, consumers will be able to save 5 to 10 percent on their expenses because products will be available at much less rates and to top it all, the quality will be better as well. In short, it will be a win-win situation for the buyers. It is also expected that the farmers who face a lot of economic problems will also get better payment for their produce. It is expected that their earnings will increase by 10 to 30 percent.

FDI is also supposed to have a positive effect on the employment scenario by generating ap-proximately 4 million job opportunities. Areas like logistics will be benefited as well because of FDI and it is assumed that 6 million jobs will be created. The governments – both central and state – will be benefited because of FDI. An addition of 25-30 billion dollars to the national treasury is also expected. This is a substantial amount and can really play a major role in the development of Indian economy in the long term.

Steps Taken by Government to Promote FDI

The Indian Government has taken a number of steps to show its willingness to allow more foreign direct investment in the country. In the infrastructure development sector, it has re-laxed the norms pertaining to area restriction, the laws regarding gaining a comfortable exit from a particular project and the requirements relating to minimum capitalization. If compa-nies are ready to commit 30 percent of their investments for affordable housing, then the rules for minimum capitalization and area restriction will be waived off. It is expected that this will benefit the construction sector a lot, especially in the form of greater investment inflow.

The situation will only get better once sectoral conditions are further relaxed and the terms that have been used in the policy are clarified up to a greater extent.This is going to be a ma-jor development considering the fact that the land in the urban areas is inadequate. It will also lead to the creation of cost-beneficial, affordable houses. It will help with the ‘Smart Ci-ties’ programme as well. In the insurance sector too, the government has increased the upper limit of FDI from 26 percent to 49 percent. It is an amalgamation of different areas of in-vestment such as:

• Foreign portfolio investment
• Foreign venture capital investment
• Foreign institutional investment
• Non-resident investment
• Qualified foreign investment
The Indian Ministry of Finance has also proposed that 100 percent FDI will be allowed in rail-ways-related infrastructure. However, this does not include the operational aspects. While it is true that the foreign investors will not be allowed to intervene in railway operations, they will be able to provide for high-speed trains, such as bullet train, and enhance the overall network in the process.

Last Year Market for FDI in India:

The last fiscal (2014-15) year saw a considerable increase in the FDI made in India. India's pro-growth business policies have contributed a great deal in making this possible. The first five months of the 2014-15 fiscal year noticed a net inflow of US$ 14.1 million FDI in India, amounting to a good 33.5 percent rise in the FDI influx registered for the corresponding pe-riod during the previous fiscal year. With an aggregate investment of US$ 353,963 million between April 2000 and November 2014, neighbouring country Mauritius has become the country with the largest Foreign Direct Investment (FDI) inflow into India.

In completed projects, 100 per cent FDI under the automatic route is allowed for operation and management of townships, malls/shopping complexes and business centers.Projects us-ing at least 60 per cent of the floor area ratio/floor space index for units of carpet area not exceeding 60 sq m will be considered affordable housing projects. For the economically weaker category, 35 per cent of the total units should be constructed with a carpet area of 21-27 sq m. Such projects may have a mix of economically weaker section, low-income group, higher-category dwelling units and commercial units. However, servant quarters along with the main unit would not be considered units for economically weaker sections/low-income groups under an affordable housing project, the statement added.

Projects committing at least 30 per cent of the total cost for low-cost affordable housing would be exempted from the minimum built-up area and capitalisation requirements, with a three-year lock-in period, Finance Minister ArunJaitley had said in his Budget speech for 2014-15.

Investments in India during 2015-16

The ruling NDA government in the centre has announced a lot of relaxations for FDI and the business done under the FDI umbrella in India. The Union Budget presented in the LokSabha by Finance Minister ArunJaitley mentioned that the procedures through which the corporate houses attract foreign investment into India will be simplified and made uncomplicated. From now onwards, there will hardly be any difference between 'Portfolio Foreign Investment' and 'Foreign Direct Investment'. The composite cap has replaced the concept of individual cap; for instance, there is now a composite cap of 49 percent foreign investors allowed in the insurance sector.

Expectations

It is expected that at the current rate and as far as the future implications are concerned, FDI may be doubled and reach a mark in excess of US$ 60 billion during the 2015-16 fiscal year. The experts believe that the foreign investors are displaying immense faith in the 'Make in India' drive of the NarendraModi government and that may propel the FDI influx into India. Further advancement and upgradation of the infrastructure in various sectors is also expected as it has been noticed that various sectors like telecommunications, automobiles, computer software and hardware and construction development had registered huge FDI inflow during the 2013-14 and 2014-15 fiscal years.

How Will FDI Benefit India?

Industrial studies have revealed that as foreign investors’ confidence in the Indian government will increase, their levels of investment in India will also go up. In the 2015-2016 fiscal year, it is expected that FDI will exceed 60 billion US dollars. In the 2013-14 fiscal year, the aggregate foreign investment amounted to 29 billion dollars. This increase owes a lot to the high expectations that foreign investors have from the Modi administration. It has been estimated that in the ongoing Twelfth Five Year Plan, which continues till 2017, India will need almost a trillion US dollars in FDI. This money will be used to develop infrastructure such as highways, airways and ports.

• To make the real estate sector in India more organized
• To increase professionalism in the sector
• To introduce advanced technology in the construction business
• To create a healthy and competitive market environment for both Indian and foreign investors
• Allowing 100 percent FDI in most real estate segments (with relaxation of certain parameters
• Introduction of a dedicated regulatory body.
• Ramping up the speed of the approval process. These, coupled with increased transparency, adapting modern designs and technology for improved project execution and timely delivery from the industry are essential for attracting FDI back into Indian real estate.

FII

An FII means an institution established or incorporated outside India, which proposes to make investment in Indian securities, and is registered with SEBI.