FDI INFLOW IN INDIA
Context
- Foreign direct investment (FDI) inflows into India in the first five months of 2020-21 have hit a record high with total FDI inflows surged from $11.51 billion between April and June to $35.73 billion by the end of August.
Reasons for major growth in FDI inflow
- Investment facilitation and ease of doing business
o Implementation of Insolvency and Bankruptcy Code (IBC)
o Changing definition of MSME
o Enactment of labour codes by merging 44 labour labour laws in 4 codes
o Decriminalization under Companies Act, 2013: The move seeks to remove criminal penalties from all provisions of the Companies Act, except provisions dealing with fraudulent conduct. The decriminalised offences include administrative offences such as delays in filing Corporate Social Responsibility (CSR) reports, or failure to rectify the register of members in compliance with orders from the National Company Law Tribunal (NCLT).
- The Ministry of Corporate Affairs launched the Simplified Proforma for Incorporating Company
- Electronically (SPICe) e-Form
- Another area where India showed improvement in World Bank’s ease of doing buisness ranking was in getting building permits
WHAT IS IT SPICE+ FORM?
- SPICe+ would be an integrated Web Form.
- It would offer 10 services by 3 Central Government Ministries & Departments (Ministry of Corporate Affairs, Ministry of Labour & Department of Revenue in the Ministry of Finance) and One State Government (Maharashtra).
- It aims to save as many procedures, time and cost for Starting a Business in India and would be applicable for all new company incorporations.
- The new web form would facilitate onscreen filing and real-time data validation for the seamless incorporation of companies.
Government Measures to increase FDI
- In 2020, schemes like production-linked incentive (PLI) scheme for electronics manufacturing, have been notified to attract foreign investments.
- In 2019, the Central Government amended FDI Policy 2017, to permit 100% FDI under automatic route in coal mining activities.
- FDI in manufacturing was already under the 100% automatic route, however in 2019, the government clarified that investments in Indian entities engaged in contract manufacturing is
- also permitted under the 100% automatic route provided it is undertaken through a legitimate contract.
- Foreign Investment Facilitation Portal (FIFP) is the online single point interface of the Government of India with investors to facilitate FDI. It is administered by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry.
Ways to attract more Investment in India
- Capital Availability – FDI is mainly dependent on the available investment capital that may be put into circulation. Increase in capital in Indian economy can further increase FDI in India
- Competitiveness – China has outpaced India when it comes to nurturing the elements necessary for business growth. The development of infrastructure has been a key driver in this area. China also boasts a strong workforce, both in terms of numbers and aptitudes. Advances in these areas dramatically lower transaction costs and increase profits, letting investors earn robust returns.
- Regulatory Environment – Government can promote investment in commercial and entrepreneurial activities by providing attractive financial incentives in the form of tax breaks, grants, low-cost government loans, and subsidies. Such government-sponsored inducements can ultimately boost profitability, and help businesses succeed quicker.
- Stability – Political and economic stability can facilitate an influx of FDI.
- Openness to Regional and International Trade – FDI tends to find its way to nations that can sell goods to both local and foreign consumers.
BENEFITS OF FDI
- FDI are seen to be instrumental in transfer of capital, technology, managerial knowledge, and other resources to developing countries.
- An increase in FDI through MNC has been associated with improved economic growth due to increased tax revenues resulting from increased economic activities for the host country.
- If MNCs invest in a country, the host country’s citizens benefit from increased local employment opportunities and access to technology and skills, thereby putting income in the hands of the local people, which improve their standard of living.
- The host country will benefit in having access to modern workers training programs and managerial best practice processes. This enabling the local citizens to participate in the global economic activities and as a result attracts more FDI because of the presence of skilled workers.
- FDI is also beneficial to the host country as it opens up access to foreign markets and extensive marketing network for the host country’s products and services
- Access to new markets will promote export, increase economic activities, promote economic development, and hence the standard of living of the citizens of the host country.
- The presence of foreign companies is said to have positive impact on productivity of the domestic economy. That is, competition from the foreign companies can lead to higher productivity gains and greater efficiency in the host country.