Question – Evaluate the role of FDI in contributing economic growth of India. Discuss the measures taken by the government on policy reforms in FDI, ease of investment and ease of doing business.

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Question – Evaluate the role of FDI in contributing economic growth of India. Discuss the measures taken by the government on policy reforms in FDI, ease of investment and ease of doing business. – 28 May 2021

Answer

FDI in India was brought under FEMA in 1991 by the then Finance Minister Manmohan Singh. For a country like India, FDI is like an economic aid that opens up new dimensions of development without tying the country to any debt. By FDI we mean not only money but also skill, process, management, technology etc.

Foreign direct investment is an investment made by a group with the intention of establishing permanent interests in the business or corporation of a single country. It is a major carrier of economic development and an important source of non-debt finance for economic development in the country. FDI brings new capital, new technology and employment opportunities to the domestic economy.

Currently the government has allowed 100 percent foreign direct investment in defense sector, medicines and medical sector, civil aviation and food sector. Promoting FDI will not only increase investment, but will also include new technologies to expand areas of production. The use of technologies will lead to great development of commerce and agricultural products, which will increase employment and increase the income of citizens, and the economy of the country will also grow.

Foreign companies are getting more work in India for less salary, due to which they are exploring new possibilities to invest in India. At the same time, the privileges being given by the government in investment are also attracting foreign investors. Today, India has become the favorite of investors for FDI. Telecom, construction-work, computer software, hardware, etc. are sectors that are attracting considerable foreign investors. India’s liberal FDI policy, structural reforms undertaken by the government at both the central and state levels, and the booming consumer market are among those, there are several reasons, which makes India more attractive to FDI than other countries.

Government efforts to increase FDI:

  • In the year 2020, schemes like ‘Production-Linked Incentive-PLI’ have been notified to attract more foreign investment in the electronic manufacturing sector.
  • In the year 2019, the FDI Policy 2017 was amended by the Central Government to allow 100% FDI under automatic route in coal mining activities.
  • Apart from this, 26% FDI has been allowed in the digital sector by the government. The region has the potential for high FDI, due to favorable demographics, adequate mobile and Internet users in India. It offers massive consumption and technology as well as an opportunity to provide foreign investors with a large and promising market in India.
  • The Foreign Investment Facilitation Portal-FIFP is an online single point interface of the Government of India to facilitate FDI to investors. It is administered by ‘Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry’, Department of Promotion of Industry and Internal Trade, Ministry of Commerce and Industry.

Expectations of increase in FDI:

  • In recent times, foreign investors have shown interest in the government’s move to allow private operation of the train, and the bidding process for the construction of airports. Similarly, in March 2020, NRIs have been allowed by the government to get 100% stake in Air India.
  • In May 2020, the FDI limit under automatic route has been raised from 49% to 74% under automatic route in important sectors like defense manufacturing. This step of the government may attract large investments even further.

Foreign direct investment (FDI) is a major driving force for economic development, so a strong and easily accessible FDI should be ensured. Thus economic growth and the market of India in the post-epidemic period will attract large investments in the country.

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