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What is foreign direct investment (FDI)?
 

  • FDI refers to investment in India by nonresident entity or person through merger & acquisition or setting up new operations.
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  • It’s an investment made to acquire lasting interest in the enterprise operating outside of the economy of the investor.
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  • Department of Industrial Policy & Promotion (DIPP) is the nodal department for formulation of the Government policy on FDI.
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  • It is also responsible for maintenance and management of data on FDI inflows, based upon the remittances reported by the RBI.
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  • Foreign Investment Promotion Board (FIPB) is responsible for clearance of FDI proposals and review of the implementation of cleared proposals.
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Procedure to receive FDI in an Indian company
 

  • An Indian company may receive FDI under the two routes:
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  • Automatic Route- Under the automatic route FDI is allowed without prior approval either of the Government or the RBI in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.
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  • Government Route-FDI in activities not covered under the automatic route requires prior approval of the Government which is considered by the FIPB, Department of Economic Affairs, Ministry of Finance.
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Benefits of FDI
 

  • Improves forex position
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  • Brings in fresh capital thereby helping in capital formation
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  • Generates employment
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  • Increases production etc
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Sectors prohibited for FDI
 

  • Over the years, Government has relaxed FDI limits in various sectors. However in the following sectors FDI is prohibited under both the routes:
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FDI trend in India
 

  • Chart below shows net1 FDI trend over the years
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FDI India Trend

 

  • Over the years, FDI inflows have increased from $3.3bn in 2001 to $19.8bn in 2013.
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  • Though FDI flows have fluctuated over years, India has not seen negative FDI flows.
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  • For Q1FY14 net FDI flows were $ 6.5bn.
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  • Below charts show top investing countries and sectors for FDI inflows as % of total FDI inflows from April 2000 to July 2013.
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Top Investing Countries and Sectors for FDI

 

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