Module 4

MODULE 4

FDI AND SECTORS

Emerging issues in flow of Foreign Direct Investment (“FDI”) across different sectors in India
attracted FDI equity inflows of US$ 2,214 million in April 2010. The cumulative amount of FDI
equity inflows from August 1991 to April 2010 stood at US$ 134,642 million, according to the
data released by the Department of Industrial Policy and Promotion (“DIPP”).

The services sector comprising financial and nonfinancial services attracted 21 per cent of the
total FDI equity inflow into India, with FDI worth US$ 4.4 billion during April-March 2009- 10,
while construction activities including roadways and highways attracted second largest amount
of FDI worth US$ 2.9 billion during the same period. Housing and real estate was the third
highest sector attracting FDI worth US$ 2.8 billion followed by telecommunications, which
garnered US$ 2.5 billion during the financial year 2009-10. The automobile industry received
FDI worth US$ 1.2 billion while power attracted FDI worth US$ 1.4 billion, during April-March
2009-10, according to data released by DIPP. In April 2010, the telecommunication sector
attracted the highest amount of FDI worth US$ 430 million, followed by services sector at US$
355 million and computer hardware and software at US$ 172 million, according to data released
by DIPP. Data released by other International organizations reflect the improved condition of
global FDI after 2008.

The International Monetary Fund reported that net inflows in emerging and developing
economies were up to $294.1 billion in 2010, compared to $274.8 billion in 2009. Sector-Wise
FDI Inflows from April 2000 to September 2012.

4.1. SERVICE SECTOR

Service sector is one of the most important sectors contributing to the sustained economic growth
and development by contributing 55% to GDP. There is a continuously increasing trend of FDI
inflows in service sector with a steep rise in the inflows from 2005 onwards).

Foreign direct investment (FDI) in services sector grew 36.5 per cent to $9.15 billion in 2018-19,
according to the Department for Promotion of Industry and Internal Trade (DPIIT).
The sector attracted FDI worth $6.7 billion in 2017-18. Services sector includes finance,
banking, insurance, outsourcing, R&D, courier, technology testing and analysis.

4.2. CONSULTANCY SECTOR

Consultancy Sector received US$ 1.1 billion which is 1.14% of total inflows received from
2000-2008 through FIPB/SIA route, acquisition of existing shares and RBI’s automatic route.
Management services received an investment of US$ 737.6 million, marketing US$138.65
million.

4.3. EDUCATION SECTOR
The education sector in India is one of the most dynamic sectors with immense potential for
growth and investment. The education industry in India is estimated to reach US$ 144 billion by
2020 from US$ 97.8 billion in 2016 according to IBEF’s industry report of April 2018. As per
the DIPP, FDI the India education sector has received a cumulative foreign investment of around
US$ 1.67 billion from 2000 until December 2017.

The FDI Policy allows up to 100% foreign investment in the education sector under the
automatic route (i.e. without the requirement of prior Government approval). Further, FDI in
companies engaged in construction-development projects (including inter alia educational
institutions) is permitted up to 100% under the automatic route, subject to compliance with
certain conditionalities.



4.4. CONSTRUCTION ACTIVITIES SECTOR
Construction activities sector includes construction development projects viz. housing,
commercial premises, resorts, educational institutions, recreational facilities, city and regional
level infrastructure, township. In India, Delhi, Mumbai, and Hyderabad receives maximum

amount (viz. US$ 1245.61, 1000.5, and 943.22 billion) of investment. The amount of FDI in
construction activities during Jan 2000 to Dec. 2008 is US$ 4.9 billion which is 6.15% of the
total inflows received through FIPB/SIA route, acquisition of existing shares and RBI’s
automatic route. The construction activities sector shows a steep rise in FDI inflows from 2005
onwards. Major investment in construction activities is received from Mauritius.

4.5. AUTOMOBILE INDUSTRY
Currently valued at US$75 billion, the automobile industry is estimated to touch the coveted
US$300 billion mark by 2026. With a US$135 billion revenue industry expectation by 2020, the
automobile segment can reach US$300 billion by 2026 at a CAGR (Compound Annual Growth
Rate) of 15%.

India's rapidly growing 5 auto hubs have a significant potential to be used as a base for export to
SEA and MENA regions. In FY19, year-on-year growth in domestic sales among all the
categories was recorded in commercial vehicles at 17.55 per cent followed by 10.27 per cent
year-on-year growth in the sales of three-wheelers.

Overall domestic automobiles sales increased at 6.71 per cent CAGR between FY13-19 with
26.27 million vehicles getting sold in FY19. The industry saw a 25.5 per cent jump in FDI from
2018 to 2019, 8.95% Share in Total FDI flows. US$ 23.9% Total FDI inflows during April 2000
– December 2019

US$5.1 bn Investments in the Automobile Industry from April 2000 to March 2019.

4.6. TELECOMMUNICATIONS SECTOR

US$ 37.1 bn Foreign Direct Investment in the telecommunication sector during April 2000 –
June 2019. US$ 5.6 bn FDI inflows in telecommunications during April 2016 - March 2017.

100% FDI is allowed in telecom sector (of this upto 49% is allowed through the automatic route
and beyond 49% under government route). 15.99% share in total FDI inflows in India
encouraged by FDI policy in telecom.

4.7. FDI AND GEOGRAPHY
If we compare international macroeconomics and trade, the empirical work and theoretical work
on the effects of geography in international finance is limited but fast growing. Example: ghost
and wolf 1998; Housman and Fernandez-Arias 200; use a gravity style of approach, a panel data
of bilateral equity flows and bonds respectively. Their findings had indicated that gross asset
flows are negatively correlated with the distance between the two countries. They interpreted
distance as a negative sign for distance variable as the existence of information costs for equity
transactions as part of trading costs.

There has been an exponential growth on studies examining the role of geography on bilateral
trade flows, especially since the introduction of the gravity model. It is commonly observed that
familiarity effect causes investors to favour close-by countries with similar characteristics and
legal systems over more distant and institutionally different countries.as the distance of the host
country increases, the familiarity may decrease, with the exception of countries distance can that
share common historical past. Another effect of distance specific to FDI is in relation to control.
However, distance can reduce investors.

4.8. FINDINGS

4.8.1. Service sector
In recent years, Service sector puts the economy on a proper← gliding path by contributing 55
%% to GDP. There is a continuously increasing trend of FDI inflows in services sector with a
steep rise in the inflows from 2005 onwards. Services sector received an investment of 19.2 bn
from 1991 to 2008. Among the subsectors of services sector, financial services attract 10.2 % of
total FDI inflows followed by banking services (2.22 %, insurance (1.6 %) and non- financial
services (1.62 %. In India, Mumbai (with 33.77 %) and Delhi (with 16 %) are the two most

attractive locations which receives heavy investment in services sector. It is found that among
the major investing countries in India, Mauritius tops the chart by investing 42.5 % in services
sector followed by U.K (14.66 %) and Singapore (11.18 %. During 1991 to Dec 2008 services
sector received 1626 numbers of foreign collaborations, out of which 77 are technical and 1549
are financial in nature.

4.8.2. Consultancy Sector
Consultancy sector received 1.14% of total FDI inflows← during 2000 to 2008. Among the
subsectors of consultancy sector management services received highest amount of FDI inflows
apart from marketing and design and engineering services. Mauritius invests heavily (37%) in
the consultancy sector. In India, Mumbai received heavy investment in the consultancy sector.
Consultancy sector shows a continuous increasing trend of FDI inflows from 2005 onwards.

4.8.3. Education sector
Education sector attracts foreign investors in the present← decade and received a whopping
308.28 million of FDI inflows during 2004-2008. It registered a steep rise in FDI inflows from
2005. Mauritius remains top on the chart of investing countries investing in education sector.
Bangalore received highest percentage of 80.14% of FDI inflows in India.

4.8.4. Construction Activities Sector
Construction activities sector received US$ 4.9 billion← of the total FDI inflows. Mauritius is
the major investment country in India. New Delhi and Mumbai are the most preferred locations
for construction activities in India.

4.8.5. Automobile Sector
Earlier Automobile Industry was the part of transportation← sector but it became an independent
sector in 2000. During January 2000 to December 2008 this industry received an investment of
US$ 3.2 billion which is 4.09 % of the total FDI inflows.

4.9. STOCK EXCHANGES
The Bombay Stock Exchange (“BSE”) and the National Stock Exchange (“NSE”) are the stock
markets where most of the trading takes place in India. The BSE came into existence in 1875 and
the NSE, on the other hand, came into existence in 1992 and started trading in 1992. Fact is both
the stock exchanges follow the same trading rules, settlement process, trading hours, etc. The
BSE and NSE have 4,700 listed firms and 1,200 listed firms, respectively. The listed firms of
BSE with 500 firms constitute more than 90% of market capitalization the rest left firms consists
of highly illiquid shares.

Most of the notable firms of India are there on both the exchanges. Where NSE enjoys the ruling
of share in spot trading, with 70% of the market share, as on 2009, and almost a complete
monopoly in derivatives trading, consisting of 98% share in the market, also on 2009. Both
exchanges compete for the order flow that leads to reduced costs, market efficiency and
innovation. The prices on the two exchange rates are kept tight due to the existence of
arbitrageurs.

4.10. MARKET REGULATION
In 1990s, India allowed the foreign investments. They are classified into two categories: foreign
direct investment (FDI) and foreign portfolio investment (FPI). FDI are those investments in
which the investor takes part in day-to-day management and operations of the company. On the
other hand, investments in shares without any control over management and operations are
treated as FPI.

4.11. INVESTORS AND TYPES

4.11.1. Foreign Institutional Investor (“FII”)

FIIs groups usually operate as hedge funds, insurance companies, mutual fund, and pension
funds.

They are mostly associated by India, which was, until recently, very restrictive laws on foreign
investment. India’s Securities and Exchange Board regulates FIIs in India (which is similar to
Securities and Exchange Commission in the United States). FIIs played an important role in
India’s economic growth as they invested in India. This was true even under India’s restrictive
foreign investment laws. Recently, FII’s were limited as how much equity they could purchase in
a domestic Indian company.

Until recently, the foreign investor laws allowed FIIs to own up to 100% of Indian companies in
certain industries in India. The change which was made in 2014 brings India into conformance
with other countries foreign investment policies. Due to the change, India expects FIIs to make
investments in India that will help its economy double in size in 2015.

4.11.2. Foreign Direct Investment

FDI is investment made by a company or an entity based in one country into a company or entity
based in another country. FDI’s differ significantly from indirect investments such as portfolio
glows, where overseas institutions invest in equities listed on a nation’s stock exchange.
Institutions which invest in company enjoy a notable degree of effect and control over the
company. Open economies having skilled workforces and good growth prospects tend to attract
larger amounts of foreign direct investment than closed, highly regulated economies.

Sectoral caps for FDI in various sectors:

§ Agriculture-100%

§ Asset Reconstruction Companies–100%

§ Civil Aviation–100%

§ Commodity Exchanges–49%

§ Courier Services–100%

§ Credit Information Companies–100%

§ Defence–49% (automatic route)1
§ Digital Media- 26%
§ Insurance–49%
§ Multi Brand Retail–51%
§ News Channel- 49%
§ Pension–26%
§ Petroleum and Natural Gas–100% (exploration activities).
§ Power Exchanges–49%
§ Print Media–26%
§ Private Sector Banks–100%2 Public Sector Banks–20%
§ Single Brand Retail–100%
§ Special Economic Zones–100%
§ Stock Exchanges/Clearing Corporations–49%
§ Tea Plantation–100%
§ Telecom–100%3
§ Tourism–100%


1 Government route beyond 49% wherever it is likely to result in access to modern technology or for other reasons
to be recorded.
2 Note: This option of 100% FDI will be only available to a regulated wholly owned subsidiary of a foreign bank
and not any investment companies. Other foreign investors can invest up to 74% in an Indian private sector bank,
through direct or portfolio investment
3 Note: of this upto 49% is allowed through the automatic route and beyond 49% under government route

4.11.2.1. Automatic route
Automatic route allows FDI without prior approval either of government or the RBI in all sectors
as written in the FDI policy. Which is issued by the government of India from time to time.

4.11.2.2. Government route
FDI in activities not covered under the automatic route requires prior approval of the
Government which are considered by the Foreign Investment Promotion Board (FIPB),
Department of Economic Affairs.

4.11.3. Outward Direct Investment
A business strategy where a domestic firm expands its operations to a foreign country either via a
Green field investment, merger/acquisition and/or expansion of an existing foreign facility.
Employing outward direct investment is a natural progression for firms as better business
opportunities will be available in foreign countries when domestic markets become too saturated.

4.11.4. Foreign Portfolio Investment
Foreign direct investment (FDI) involves establishing a direct business interest in a foreign
country, such as buying or establishing a manufacturing business, while foreign portfolio
investment (FPI) is investing in financial assets, such as stocks or bonds, in a foreign country. A
number of other differences follow from the basic difference in the nature of the two types of
investments.

FPI typically has a shorter time frame for investment return than FDI. As with any equity
investment, FPI investors usually expect to quickly realize a profit on their investments. Unlike
FDI, FPI doesn’t offer control over the business entity in which the investment is made. Because
securities are easily traded, the liquidity of FPIs makes them much easier to sell than FDIs. FPIs
are more accessible for the average investor than FDIs, since they require much less investment
capital.

When making foreign investments, investors have to consider economic factors as well as other
risk factors, such as political instability and currency exchange risk.

4.11.5. Qualified Foreign Institutional Investor
A program that permits certain licensed international investors to participate in Indian stock
exchanges. Prior to QFII, foreign investors were not able to buy or sell shares on India stock
exchanges because of India’s tight capital controls. With the launch of the QFII program,
licensed investors can buy and sell Rupee -denominated “A” shares. Foreign access to these
shares is limited by specified quotas that determine the amount of money that the licensed
foreign investors are permitted to invest in India’s capital markets.

Participatory Notes

Financial instruments used by investors or hedge funds that are not registered with the SEBI to
invest in Indian securities. Indian-based brokerages buy India-based securities and then issue
participatory notes to foreign investors. Any dividends or capital gains collected from the
underlying securities go back to the investors.

Depositary Receipt

Say if an Indian company wants to mobilize capital from abroad, can they do it? Even a novice
will instantaneously come up with an answer like ‘NO’. We have too many controls which will
not allow rising of capital abroad easily. This is what we ‘perceive.’ As we are liberalizing our
economy, rising of capital from outside the country is slowly enabled by the government. ADRs
and GDRs are the result of such liberalization.

American Depositary Receipt

A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one
share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S.
dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to
reduce administration and duty costs that would otherwise be levied on each transaction.

This is an excellent way to buy shares in a foreign company while realizing any dividends and
capital gains in U.S. dollars. However, ADRs do not eliminate the currency and economic risks
for the underlying shares in another country. For example, dividend payments in Euros would be
converted to U.S. dollars, net of conversion expenses and foreign taxes and in accordance with
the deposit agreement. ADRs are listed on the NYSE, AMEX or NASDAQ as well as OTC.

Global Depositary Receipt

A bank certificate issued in more than one country for shares in a foreign company. The shares
are held by a foreign branch of an international bank. The shares trade as domestic shares, but
are offered for sale globally through the various bank branches.

A financial instrument used by private markets to raise capital denominated in either U.S. dollars
or Euros.

Indian Depository Receipts

Indian Depository Receipt (IDR) is a financial instrument denominated in Indian Rupees in the
form of a depository receipt created by a Domestic Depository (custodian of securities registered
with the Securities and Exchange Board of India) against the underlying equity of issuing
company to enable foreign companies to raise funds from the Indian securities Markets

European Depository Receipt

A negotiable security (receipt) that is issued by a European bank and that represents securities
which trade on exchanges outside of the bank’s home country. Abbreviated as “EDRs”, these
securities are traded on local exchanges and used by banks – and issuing companies in the U.S.
and other countries – to attract investment capital from the European region.

Overseas Individual investor categories (NRI)
NRI is a citizen of India who holds an Indian passport and has temporarily immigrated to another
country for six months or more for employment, residence, education or any other purpose.

The term non-resident refers only to the tax status of a person who, as per section 6 of the
Income-tax Act of 1961, has not resided in India for a specified period for the purposes of the
Income Tax Act.The rates of income tax are different for persons who are “resident in India” and

for NRIs. For the purposes of the Income Tax Act, “residence in India” requires stay in India of
at least 182 days in a calendar year or 365 days spread out over four consecutive years.
According to the act, any Indian citizen who does not meet the criteria as a “resident of India” is
a non-resident of India and is treated as NRI for paying income tax. Person of Indian Origin or
ancestry but who is not a citizen of India and is the citizen of another country. A PIO might have
been a citizen of India and subsequently taken the citizenship of another country, or have
ancestors born in India or other states.

Other terms with vaguely the same meaning are overseas Indian and expatriate Indian. In
common usage, this often includes Indian-born individuals (and also people of other nations with
Indian ancestry) who have taken the citizenship of other countries.

Government of India considers anyone of Indian origin up to forty generations removed to be a
PIO, with the exception of those who were ever nationals of Afghanistan, Bangladesh, Bhutan,
Nepal, Pakistan, or Sri Lanka. The prohibited list periodically includes Iran as well.

The government issues a PIO Card to a PIO after verification of his or her origin or ancestry and
this card entitles a PIO to enter India without a visa. The spouse of a PIO can also be issued a
PIO card though the spouse might not be a PIO. This latter category includes foreign spouses of
Indian nationals, regardless of ethnic origin, so long as they were not born in, or ever nationals
of, the aforementioned prohibited countries.PIO Cards exempt holders from many restrictions
that apply to foreign nationals, such as visa and work permit requirements, along with certain
other economic limitations.

Overseas Citizenship of India
In response to persistent demands for “dual citizenship” particularly from the Diaspora in North
America and other developed countries and keeping in view the Government’s deep commitment
towards fulfilling the aspirations and expectations of Overseas Indians.

The Overseas Citizenship of India (“OCI”) Scheme was introduced by amending the Citizenship
Act, 1955 in August 2005. The Scheme was launched during the Privacy Bharatiya Divas
convention 2006 at Hyderabad. The Scheme provides for registration as Overseas Citizen of
India (OCI) of all Persons of Indian Origin (PIOs) who were citizens of India on 26th January,
1950 or thereafter or were eligible to become citizens of India on 26th January, 1950 except who

is or had been a citizen of Pakistan, Bangladesh or such other country as the Central
Government may, by notification in the Official Gazette.

OCI is not to be misconstrued as ‘dual citizenship’. OCI does not confer political rights. The
registered Overseas Citizens of India shall not be entitled to the rights conferred on a citizen of
India under article 16 of the Constitution with regard to equality of opportunity in matters of
public employment

Foreign Currency (Non-Resident) Account (Banks) Scheme _FCNR
NRIs (individuals / entities of Bangladesh / Pakistan nationality / ownership require prior
approval of RBI)

Non-Resident (External) Rupee Account Scheme [NRE Account]
NRIs (individuals / entities of Bangladesh / Pakistan nationality/ownership require prior approval
of RBI)

Non-Resident Ordinary Rupee Account Scheme [NRO Account]

Any person resident outside India (other than a person resident in Nepal and Bhutan). Individuals
/ entities of Pakistan nationality / ownership, entities of Bangladesh2 ownership and erstwhile
Overseas Corporate Bodies5 require prior approval of the Reserve Bank.

4.12.ACCOUNTS

4.12.1. Nostro account

A bank account held in a foreign country by a domestic bank, denominated in the currency of
that country. Nostrum accounts are used to facilitate settlement of foreign exchange and trade
transactions. The term is derived from the Latin word for “ours.” Conversely, accounts that are
held by the domestic bank in its home country for foreign banks are called vostro accounts

For example, a U.S. bank may have nostro accounts with one or more Canadian banks. These
accounts will be denominated in Canadian dollars, which enables efficient settlement of

transactions that are Canadian dollar denominated. Nostro accounts also minimize the exposure
of the U.S. bank to undue exchange rate risk.

4.12.2. Vostro account

The account that a correspondent bank, usually located in the United States or United Kingdom,
holds on behalf of a foreign bank. A vostro account is one in which the domestic bank (from the
point of view of the currency in which the account is held) acts as custodian or manages the
account of a foreign counterpart. Also known as a loro account.

4.13. PHASES OF BUSINESS CYCLE
Business cycle conduct has been moderately synchronized since the mid-nineties. In 2001, the
dispersion of monetary development rates over the industrialized economies even tumbled to its
most minimal level in more than 30 years, as the worldwide economy encountered a downturn
that was bizarrely far reaching over nations. Comprehensively, the watched level of yield co-
movement reflects both the idea of the stuns that have happened and the level of financial
association. output developments will be more related if basic stuns happen to be predominant,
while they will be more unbalanced if eccentric stocks are generally important.

In light of monetary relations among economies, country specific stuns may get transmitted to
different nations, improving yield co-movement in a roundabout way. The higher level of yield
co-movement as of late has somewhat been driven by basic stuns, such as extensive changes in
crude oil prices, the rise and fall of the information technology boom and restrictive monetary
policies (Peersman 2002).

In any case, it is generally felt that normal stuns are most certainly not the entire story, bringing
up the issue to what degree more profound financial linkages, and what sort of linkages, may
have added to the more synchronized nature of financial vacillations. The ascent in worldwide
monetary relationship has happened along three measurements.

The first is universal exchange merchandise and ventures, which is the "traditional" channel
through which economies may influence each other. Despite the fact that imports and exports as
an offer of GDP have as a rule expanded, there has been no set apart in all cases speeding up of

this pattern as of late. It is thusly improbable that more profound exchange interdependencies
have contributed altogether to the current ascent in yield relationships.

The second kind of connection is given by universal exchange budgetary resources, for example,
value and bonds, and cross-outskirt credit relations. Cross-fringe property of portfolio resources
have mushroomed as of late.

For instance, outside property of US long haul securities added up to 42% of US GDP in March
2000, having tripled in under two and a half years (Griever, Lee and Warnock 2001).
Connections between securities exchanges of the real nations have extraordinarily expanded
throughout the last twenty years, except for Japan (Goetzmann, Li and Rouwenhorst 2001,
Berben and Jansen 2002). Budgetary markets have in this way picked up significance as a
channel for the global transmission of stuns.

The third measurement of reliance is the internationalization of creation through remote direct
speculation (FDI). Remote direct speculation has developed at rates a long ways past those of
global exchange or yield since the late 1980s. Particularly in the second 50% of the 1990s, firms
were outstandingly dynamic in cross-outskirt mergers and acquisitions (M&A).

The remarkable worldwide supply of FDI dramatically increased in ten years’ time from 8.3% of
world GDP in 1990 to 17.5% out of 2000 (UNCTAD 2002). At present, around 11% of world
yield is created by remote members (UNCTAD 2002). It is conceivable that the larger presence
of FDI is partly responsible for the observed increase in cross-country business cycle co
movement. The empirical literature on the effects of FDI is often based on firm-level data and
mainly deals with supply-side effects on host economies in the longer run, focusing on the
transfer of technology, management techniques and business models.

The possible role FDI may play in the transmission of economic shocks across borders:

Using aggregate data, we examine to what extent the rapid expansion of FDI and the
internationalization of production can be related to the phenomenon of more synchronized
business cycles.

4.14. SIGNIFICANT CHANGES IN FDI POLICY
A policy is often known as a set of ideas that is used as basis for making decisions, especially in
the field of economics, politics or business.

India unveiled a new foreign direct investment policy framework that contains provisions
including startups for the first time.

The FDI policy circular of 2017 listed startups as separate section and it spells out provisions that
allow them to increase foreign money from the venture capital funds and to others through
convertible notes.

Equity or equity linked instruments to foreign ventures capital (VC) investors can be issued. It
was first issued after the abolition of the Foreign Investment Promotion Board (FIPB).

The Department of Industrial Policy and Promotion (“DIPP”) released some rules which are as
follows:

§ All Foreign residents, except those of Pakistan and Bangladesh, will be allowed to buy
convertible notes issued by an Indian startup for Rs. 25 lakh or more in a single tranche.

§ In sectors where FDI is not under automatic route to issue convertible notes, government
approval will have to be taken by such startups.

§ Recently, the government had relaxed rules pertaining to VCs getting funds from funds of
funds and allowing them to invest in firms other than startups.

§ Convertible notes can also be acquired by Non- resident Indians on a non-repatriation
basis.

§ Changes made to the FDI policy after the abolition of FIPB were also taken into
consideration.

§ Sectors like civil aviation, defence, construction and development and on more than
dozen more sectors, the government has liberalised the FDI Policy.

The changes in the policy include acceptance of 100 % FDI under the government approval route
for trading including e-commerce, for food products manufactured or produced in India.

The government has removed the condition of ‘state-of-art’ technology, and has permitted
foreign investment in manufacturing of small arms and ammunitions, to attract investment in the
defence sector. FDI has also been permitted by the government in broadcasting carriage services
like teleports, direct-to-home and mobile TV. The government has allowed 100% investments in
airline and has eased norms for overseas investments in the brownfield airports. FDI limit was
raised from 49 per cent to 74 per cent in the private security agencies.

In single-brand retail trading, the mandatory local sourcing norm for foreign firms will not be
applicable up to three years from commencement of the business. . The DIPP also notified the
changes in pharmaceuticals, in which government has allowed FDI up to 74% through automatic
route and beyond that under government approval. Norms in the animal husbandry sector have
also been reduced by the government. FDI in country grew almost by 29% to USD 40 billion in
2015-2016.

4.15. A COMPARISION WITH FDI SCENARIO IN CHINA
India and China are two most exciting emerging global players due to the following factors:

§ High economic growth rates

§ Rapid raising share in world

§ Large inflows of FDI

§ Engines of growth in demand of commodities

§ Positive demographics

In the year 2015, India was the top destination for foreign direct investment (FDI). According to
FDI Intelligence, Asia’s third largest economy reached past China- which was at the top for
many years with US$ 63 billion worth of foreign investment.

There was an increase in the number of investment projects in coal and power in India which
helped the country surpass China. The number of projects in the country rose to 697 in 2015 over

the previous year however, it is still lower than China’s 789 projects which indicates that the
value of investments was much higher in India.

Including the International Monetary Fund (“IMF”), India is one of the growing major
economies in the world and is considered to be a boon by international agencies. Our prime
minister

China, on the other side, is having slow economic growth, high debt and overcapacity. Beijing is
adding to the debt to ease in the process of slowdown. In February, the country announced 1.8
million workers to downsize its coal and steel industries.

“India replaced China as the top destination for FDI by capital investment following a year of
high- value project announcements, specifically across the coal, oil and natural gas and
renewable energy sectors,” the FDI report said.

Top FDI destinations in Asia- Pacific in 2015

COUNTRY CAPITAL INVESTMENT
1. INDIA $63 BILLION
2. CHINA $56.6 BILLION
3. INDONESIA $38.5 BILLION
4. VIETNAM $21.1 BILLION
5. PAKISTAN $18.9 BILLION

The United Nations Conference on Trade and Development (“UNCTAD”) said that
India was among the top 10 recipients of Foreign Direct Investment (FDI) in 2019, attracting
US$ 49 billion in inflows, a 16% increase from 2018, driving the FDI growth in South Asia. The
majority went into services industries, including information technology.