FDI Approval in India

Foreign Direct Investment in India:

Major economic reforms were undertaken in India in the early 1990s. This led to the liberalization and deregulation of the Indian economy and also opened the country's markets to Foreign Direct Investment (FDI). In India, foreign direct investments are allowed through collaborations that are of financial nature, joint venture collaborations, through preferential allotments, and also through Euro issues.

Various routes of FDI Approval in India:

The proposals for foreign direct investment in India get their approval through two routes that are the Reserve Bank of India and the Foreign Investment Promotion Board. Automatic approval is given by the Reserve Bank of India to the proposals for foreign direct investment in India. The Reserve Bank of India gives approval within the time period of two weeks. It gives approval to the proposals for foreign direct investment in India that involve FDI up to 74% in the nine categories that are included in List four, FDI up to 50% in the three categories that are included in List two, and FDI up to 51% in the forty eight industries that are included in List 3. FDI Approval in India is also done by the Foreign Investment Promotion Board (FIPB), which processes cases of non- automatic approval. The time taken by Foreign Investment Promotion Board for approving the proposals for foreign direct investment in India is between four to six weeks. The approach of FIPB is liberal as a result of which it accepts most of the proposals and rejects very few.

FDI Approval in India and Economic Growth

FDI approvals in India have grown significantly in recent years. Significant FDI approvals have taken place in telecom, real estate, banking and insurance sectors. Several other sectors have also benefited from FDI approvals in India. FDI approvals have played a major role in the economic growth of India in recent years.

Policy On FDI
The Policy on FDI in India has been most liberal and transparent among all other developing countries, receiving FDI Inflows for economic development. India receives up to 100 percent Foreign Direct Investments under the automatic route in almost all the

activities and industrial sectors except those which require Government approval for the execution of activities.

Sectors in India Prohibited For FDI

Sectors which require industrial license for execution of activities

o

Proposals by the foreign players who already possess a financial or technical collaboration firm in the similar field in India

Proposals regulated by Securities and Exchange Board of India for acquisition of shares in an already existent Indian company in the financial service sector

Proposals which are not included or which do not abide by the recommended sectoral policy or CAPS under sectors in which Foreign Direct Investment is not permitted

Sectors which are not under automatic route and in which investments in those sectors require prior approval of Central Government, the approvals for proposals are granted by Foreign Investment Promotion Board (FIPB)

Industrial Units in India Deprived from FDI as per FDI Policy

Atomic Energy Gambling and betting Retail Trading Lottery Business Agricultural or plantation activities of Agriculture

FDI Policy in IndiaAfter the granting of Foreign Direct Investment by the Foreign Investment Promotion Board (FIPB) under automatic route, the industrial sectors in India can take regulatory

approvals from the state government and other authorities in the local places for construction of building, water, environmental clearance, and so on.

FDI Policy Under Automatic RouteSectors working under automatic route does not require any prior approval of the Central Government of RBI to attract Foreign Direct Investment. The foreign investors are only required to inform the Regional Office concerned of RBI within thirty days receiving of inward payments and submit the required documents in that office again within thirty days of the issuing of the shares of foreign institutional investors.

FDI Policy Under Government ApprovalThe proposals which involve foreign investment or foreign technical collaboration is granted permission by the Foreign Investment Promotion Board (FIPB). All the proposals for FDI are to be submitted to the FIPB Unit and those of Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs) should be submitted to SIA in Department of Industrial Policy and Promotion.

Industrial Licensing in FDI PolicyIndustrial Licensing is regulated by Industries (Development and Regulation) Act 1951. Following are the sectors which require Industrial Licensing:

Industries which abide by compulsory licensing Manufacturing of items by the larger industrial units for small sector industries Locational restrictions on the proposed sites

Sectors Which Require Industrial Licensing

Electronic aerospace and defense equipment Alcoholics drinks Explosives Cigarettes and tobacco products Hazardous chemicals such as, hydrocyanic acid, phosgene, isocynates and diisocynates of hydro carbon and derivatives

Advantages of FDI(Advantages & Disadvantages of FDI in retail sector)

Integration into global economy - Developing countries, which invite FDI, can gain access to a wider global and better platform in the world economy. Economic growth - This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country. Trade - Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country. Technology diffusion and knowledge transfer FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. Developing countries by inviting FDI can introduce world-class technology and technical expertise and processes to their existing working process. Foreign expertise can be an important factor in upgrading the existing technical processes. Increased competition - FDI increases the level of competition in the host country. Other companies will also have to improve on their processes and services in order to stay in the market. FDI enhanced the quality of products, services and regulates a particular sector. Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market. Human Resources Development - Employees of the country which is open to FDI get acquaint with globally valued skills. Employment - FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India.

FDI Status in Different States of India

Abstract:
FDI in different states in India have increased steadily since the early 1990s when the Indian economy was opened up to foreign investments. Delhi, Maharashtra, Karnataka and Tamil Nadu are among the leading states that have attracted maximum FDI. The status of FDI in different states of India, during the period beginning from the year January 2000 to October 2006 corroborates the growth of Indian states in sync with the Indian economy. Some of the states in India which have witnessed a massive upsurge in

FDI Inflows include Delhi (USD 6,780 million), Maharashtra (USD 5,650.1 million), Karnataka (USD 1,876.1 million), and Tamil Nadu (USD 1,876.1 million). Other states which are in the receipt of FDI Inflows in India include West Bengal, Gujarat, Haryana, Andhra Pradesh, Kerala, and Uttar Pradesh.

FDI in Maharashtra Foreign Direct Investment on Maharashtra covers Mumbai, Dadra and Nagar Haveli, and Daman & Diu. The total FDI Inflows in Maharashtra economy from January 2000 to October 2006 was estimated to be around ` 25,685.45 crores which is approximately USD 5,650.1 million.

FDI in West Bengal Foreign Direct Investment in various states in and around West Bengal covers West Bengal, Sikkim, and Andaman & Nicobar Islands. The FDI Inflows in these states from January 2000 to October 2006 was around ` 1,523.83 crores which comes to around USD 334.8 million.

FDI in Karnataka Foreign Direct Investment on Karnataka from January 2000 to October 2006 has accounted for ` 8,485.38 crores which approximately comes to around USD 1,876.1 million.

FDI in Gujarat Foreign Direct Investment on Gujarat from January 2000 to October 2006 was estimated to be around ` 4,112.73 crores which comes to around USD 898.8 million. Gujarat ranks six in terms of FDI Inflows in India.

FDI in Haryana The total Foreign Direct Investment Inflows in Haryana, Delhi, and parts of Uttar Pradesh has been estimated to be around ` 30,673.73 crores which is approximately USD 6,780.0 million from January 2000 to October 2006. Haryana ranks first in terms of receiving FDI Inflows in India.

FDI in Delhi Foreign Direct Investment Inflows on Delhi economy has been estimated to be around ` 30,673.73 crores which roughly comes to USD 6,780.0 million from January 2000 to October 2006.

FDI in Tamil Nadu Foreign Direct Investment Inflows on Tamil Nadu and Pondicherry has been accounted for ` 8,485.38 crores which comes to around USD 1,876.1 million from January 2000 to October 2006. Tamil Nadu ranks third in terms of FDI Inflows in India.

FDI in Andhra Pradesh Foreign Direct Investment Inflows on Andhra Pradesh has been estimated to be around ` 4,825.36 crores which is approximately USD 1,061.4 million as has been calculated between January 2000 and October 2006. Andhra Pradesh ranks fifth as a recipient of FDI Inflows in India.

FDI in Kerala Foreign Direct Investment Inflows in Kerala has also covered regions in Lakshadweep and has been estimated to be around ` 339.77 crores which is approximately USD 75.1 million from January 2000 to October 2006.

FDI in Uttar Pradesh Foreign Direct Investment Inflows on Uttar Pradesh and Uttaranchal was ` 15.27 crores which comes to around USD 3.3 million from January 2000 to October 2006. The following links provide detailed information on the impact of FDI in different Indian states:

FDI Restrictions in Indian Sectors

Abstract:
FDI Restrictions in Indian Sectors have been imposed in a number of sectors such as, atomic energy, chit fund business and lottery business. FDI Restrictions in Indian Sectors have been imposed by the government of India in order to protect the interests of the nation.

Foreign direct investment in India:

The several policy initiatives taken by the government of India in the 1990s helped to transform the country from a restrictive regime with regard to foreign direct investment

to a liberal one. As in 2007, foreign direct investment in India is encouraged in almost all the sectors of the country's economy under the automatic route. At the same time there are a few Indian sectors in which foreign direct investment has been restricted by the government. Forms through which foreign direct investment in India are allowed include, Euro issues, preferential allotments, technical collaborations, and financial collaborations. The amount of foreign direct investment in India came to around US$ 4.7 billion in 2006 - 2007, and the next year this figure increased more than three times to about US$ 15.7 billion.

Various Indian sectors having FDI restrictions:

FDI Restrictions in Indian Sectors have been imposed on a few sectors by the Indian government. FDI Restrictions in Indian Sectors have been imposed in order to protect the interests of the country, as these sectors either relate to national security or sensitive enough to keep apart the foreign companies. Foreign direct investment restrictions in Indian sectors have also been imposed in order to allow the domestic companies to make more profits with less competition, than that of in the presence of rivalry international firms. The various Indian Sectors having restrictions of foreign direct investment are:

Atomic energy Nidhi company Betting and gambling Chit fund business Plantation or agricultural activities Real estate business Business in Transferable Development Rights Lottery business Retail trading Railway transport Mining of chrome, zinc, gold, diamonds, copper, iron, gypsum, manganese, and sulfur Ammunition and arms

FDI in India (Consequences of FDI in retail sector)

Foreign Direct investment is a term that has been mentioned quite a few times in Indian News headlines in past one week or so. For those who still dont know what the heated debate on FDI is about, here is some information on Foreign Direct Investment in India that may serve enlightening.

Any kind of FDI or Foreign Direct Investment in India is regulated by the Government of India which changes the investment norms from time to time keeping in view the economic conditions of the country, development of the country among other things. Foreign Direct Investment in India for the accounting year 2010-11 was 88,520 crores as against 123,120 in 2009-10 marking a decline of 25%. Mauritius, Singapore and USA are among the largest contributors of the inflows in India through Foreign Direct Investment. Up till recently when the Government of India decided to include the retail sector in the Foreign Direct Investment, the primary sectors earnings most of the foreign inflows for the country were services sector, computer software and hardware, telecommunications, housing and real estate, construction activities , automobile industries among others. This decision of the Government to give retail a place in FDI is being criticized severely by the opposition leaders and is being seen as a big threat to the Indian retailers for whom the competition will only mount.

FDI Scenario in India

Cabinet approves 51 pc FDI in multi-brand retailing and 100% FDI permitted in Single Brand Retail This opens India's $450 billion retail market to global supermarket giants. It expected to boost investment in retails sector in India. The new rules may commit supermarkets to strict local sourcing requirements and minimum investment levels aimed at protecting jobs. The conditions include

Minimum investment of $100 million, 50% in back end Back end cannot include investment in land and rentals and front end stores At least 30% sourcing from small scales industries Stores can be in cities with minimum population of one million Government will have the first right of procurement of farm produce

International Retail Chains

Some of the international retail chains that will eye India include

Walmart Carrefour Metro Tesco Schwartz Kroger

Home Depot Costco Aldi Target

FDI in India - Policy Initiatives

The Indian government has assured to release an improvised FDI policy in every six months. The offers announced by Union Finance Minister, Pranab Mukherjee, in Union Budget 2010-11, to enhance investment ambiance in India on February 26, 2010 entail:

Measures implemented to un-complicate the FDI system System for computation of indirect foreign investment in Indian firms has been comprehensively classified. Entire liberalization of costing and imbursement of technology transmit charges and trademark, and royalty expenses.

Additionally, the Indian government has permitted the Foreign Investment Promotion Board (FIPB), to sanction FDI tenders of up to US$ 358.3 million. Previously all the tenders that entailed foreign direct investment of more than US$ 129.16 million were presented in front of Cabinet Committee of Economic Affairs (CCEA) for authorization. As the Union Home Minister, Mr P Chidambaram, the exemption would accelerate foreign direct investment inflow.

FDI in Retail Trade in Single Brand Products (Advantages & Disadvantages of FDI in retail sector)
Abstract:
FDI is allowed up to 51 percent in retail trade in single brand products in India. However FDI in retail trade in single brand products is subject to approval from the Government of India. While there are many advantages to the Indian economy from FDI in retail trade for single brand products, certain conditions are to be fulfilled for getting approval for FDI in this sector.

FDI in Retail Trade in Single Brand Products

Foreign Direct Investment in Retail Trade in Single Brand Products is allowed up to 51 percent and it is entitled to those products or items that are sold under one international brand or are branded at the time of manufacturing. While applying for the FDI in Retail sector, the retail outlet must detail about the product categories which are proposed to be sold under one brand by the applicant company. The entire system requires prior approval of the Government and is regulated by the Department of Industrial Policy and Promotion. The applications for the same should be filed with the Secretariat of Industrial Assistance and the Foreign Investment Promotion Board.

Reasons for FDI in Retail Trade in Single Brand Products

A major argument for Foreign Direct Investment in retail trade is the benefit to Indian customers from cheaper prices. Some of the important reasons for FDI in retail trade in single brand products are

Increased availability of goods to Indian consumers. More investments. To ensure increased competitiveness of Indian firms. More sourcing of Indian goods.

Important Aspects of FDI in Retail Trade in Single Brand Products

FDI is allowed up to 51 percent in the Retail trade in single branded products with prior approval from the Government of India. 51 percent FDI would only be allowed in the Retail Trade only if the products belong to a single brand. FDI will be allowed to the products which are branded at the time of manufacturing The applicant companies must take approval from the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. New products would require fresh approval.