FDI, or Foreign Direct investment, is a necessary element considering its global outreach.
It has allowed breaking the barriers between the various global economies, while even making India a huge part of its gamut.
“When a company organization or individual from one particular country makes an investment into a business or entity in another country.”
Talking about FDI in India, brings us to various other questions related to it, particularly, when, how and who introduced the concept of FDI in India.
In this article, we would dive a little deeper and have a look at all such questions on FDI in India.
Who Introduced FDI in India and When?
In a rapidly developing economy like India, usually replete with many resources, albeit, domestic, sometimes they are not sufficient. Organizations or business entities would lack the required expertise, training, skills, technology and even the funds.
So, the liberalization of the economy was taken into effect post the introduction of the economic reforms of 1991, which changed the entire scenario of the Indian economy on the global front, albeit, with a few regulations.
Thus, FDI was introduced in India in 1991, with an aim to boost the country’s economy via FDI, which would also bring in modernization, introduction to foreign brands, and more investment funding through capital or cash inflows.
Certainly, this move of introducing the FDI in India had shaped the future of the country in a big way.
The selection of Dr. Man Mohan Singh as the then Finance Minister of India, led to this challenging economic reform in India.
He introduced the FDI in India, under the Foreign Exchange Management Act (FEMA), albeit with much resistance from the opposition and many regulations.
However, with the dynamically changing nature of the politics and policies of a developing country like India, the international MNCs were allowed for technical collaborations working in India with new reforms being introduced in the Indian economy.
The major industrial sectors, which grabbed the attention of the FDI in India were:
- Computers (Software and hardware),
- Construction and infrastructure,
- Airlines, etc.
However, there are still many sectors, which strictly do not allow for any FDI investment in India, and they are:
- Atomic Energy
- Chit funds
- Housing and real estate (except Commercial projects)
- Agricultural (except fisheries, horticulture, tea plantations, Animal husbandry, etc.)
- Tobacco industry
- TDR trading, etc.
Earlier the FDI required Government approval, particularly in the cash and wholesale areas. Now, slowly and gradually the norms and regulations pertaining to the FDI in India have relaxed with the changing dynamics and mindsets of the policy makers.
There are many other sectors that allow for FDI in India, however with a few regulations, for example, the defense sector that allows for roughly 49% of FDI. Similarly, other sectors also have limited FDI allowance such as Media, insurance, etc. which are considered sensitive to the integrity of our nation.
Why FDI is necessary in India?
FDI, usually has been required by any country, and in particular the developing ones, to boost and bolster their economic growth at a much rapid pace. And apart from the economic growth, it also brings with it the introduction of newer and improved technologies, skilled resources, and moreover employment.
It has also led to bringing India on a global platform making it an multinational player and improving its international relations with other major economies.
Owing to the constant and persistent capital inflow via FDI in India, the RBI is now able to stabilize the Exchange rate.
India needs to encourage more FDI into its economy to boost the overall exports of the country by manufacturing more goods and products, which have a global consumption.
FDI is known to lead to a more stimulated competitive yet a healthy environment for the overall market. This truly paves the way for more creativity and innovation across all the sectors generating more employment and growth opportunities.
Considering the upliftment of the backward areas of India, FDI fosters the transformation of the industrial scenario introducing more and more manufacturing units into such backward regions, thereby generating more employment opportunities for the youth there.
With the introduction of FDI in a growing economy like India, we can clearly see the amelioration of the economy in the right direction stepping towards a brighter future with the introduction of new and improved technologies, more employment opportunities and highly competitive markets, thus making it imperative for a developing economy like India to encourage and invest more in FDIs.