9 Major Impacts of FDI in India

Introduction

Foreign Direct Investment or FDI refers to ownership of a business in one country by the individuals, companies, or businesses of another country. This kind of investment usually leads to a sort of ownership of the company that is being invested in. FDI may lead to significant economic growth for India. This was possible through The economic liberalization that was started in 1991. Let’s try to find out more about  FDI.

Types

There are mainly two types of FDI—Horizontal and Vertical. However, two other types of FDI have emerged—Conglomerate and Platform FDI.

1. Horizontal –

   A company does its business activities in a foreign country.

2. Vertical –

   A company takes on a different form of business activity than the one it does in its native country.

3. Conglomerate –

   It refers to when business does activities completely unrelated to the business activities in its home country.

4. Platform –

   A business expands into another country but the output is exported to another country.

Routes

There are two types of routes-

1. Automatic –

   In this route investment can be carried out without he prior approval of a Govt. body.

2. Government –

   We need Govt. approval to be able to use this route. The works on applications are handled by Ministry of Commerce and  Department for Promotion of Industry and Internal Trade (DPIIT). They are also responsible for making the Standard Operating Procedure.

Sectors

Infrastructure

10% of India’s GDP is based on construction activity. Indian government has invested $1 trillion on infrastructure from 2012 to 2017. 40% of this $1 trillion had to be funded by private sector. 100% FDI under automatic route is permitted in construction sector for cities and townships.

Electronics system design and manufacturing

The Electronics system design and manufacturing (ESDM) sector in India is rapidly growing and India is poised to become a global electronics manufacturing hub in the future with targeted exports of US$180 billion within 2025.

Information technology

FDI in IT sector is one of the biggest in India. Lots of global companies got their R&D offices in India. Bangalore,Pune,Mumbai and Hyderabad are considered to be global IT hubs.

Automotive

FDI in automotive sector was increased by 89% between April 2014 to February 2015. India is 7th largest producer of vehicles in the world with 25.5 million vehicles annually. 100% FDI is permitted in this sector via automatic route. Automobiles shares 7% of the India’s GDP.

Pharmaceuticals

Indian pharmaceutical market is 3rd largest in terms of volume and 13th largest in terms of value. Indian pharma industry is expected to grow at 20% compound annual growth rate from 2015 to 2020. 74% FDI is permitted in this sector.

Service

FDI in service sector was increased to 46% in 2014–15. It is US$1.88 billion in 2017. Service sector includes banking, insurance, outsourcing, research & development, courier and technology testing. FDI limit in insurance sector was raised from 26% to 49% in 2014. FDI limit in Insurance has been further increased to 74% in 2021.

Railways

100% FDI is allowed under automatic route in most of areas of railway, other than the operations, like High speed train, railway electrification, passenger terminal, mass rapid transport systems etc. Mumbai-Ahemdabad high speed corridor project is single largest railway project in India, other being port rail network, electrification of Indian railways. Foreign investment more than ₹900 billion (US$11 billion) is expected in these projects so far.

Chemicals

Chemical industry in India earned revenue of $155–160 billion in 2013.100% FDI is allowed in Chemical sector under automatic route. Except Hydrocynic acid, Phosgene, Isocynates and their derivatives, production of all other chemicals is de-licensed in India. India’s share in global specialty chemical industry is expected to rise from 2.8% in 2013 to 6–7% in 2023.

Textile

Textile is one major contributor to India’s export. Nearly 11% of India’s total export is textile. This sector has attracted about $1647 million from April 2000 to May 2015. 100% FDI is allowed under automatic route. During year 2013–14, FDI in textile sector was increased by 91%. Indian textile industry is expected reach up to $141 billion till 2021

Airlines

Foreigner investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted to 100%.

Aerospace

Indian aerospace manufacturing is also growing rapidly and has attracted huge investments. The industry is projected to reach US$70 billion in 2030.

References

[1] “ Foreign Direct Investment in India.”  [online].
Available: https://en.wikipedia.org/wiki/Foreign_direct_investment_in_India

[2] “Foreign Direct Investment in India: Meaning, Impact, Examples, Advantages and Disadvantages.” [online].
Available: https://cleartax.in/s/foreign-direct-investment-in-india

[3] “ Foreign Direct Investment in India | FDI Trends and Insights.” [online].
Available:https://www.ibef.org/economy/foreign-direct-investment

FAQs 

1. What is FDI in India?
FDI in India refers to foreign direct investment where overseas entities invest in Indian businesses to gain ownership or control.

2. What are the main types of FDI?
The main types of FDI are Horizontal, Vertical, Conglomerate, and Platform FDI.

3. What is the automatic route in FDI?
Automatic route FDI allows foreign investment without prior government approval.

4. What is the government route in FDI?
Under the government route, foreign investors must obtain approval from DPIIT or the concerned ministry.

5. Which sectors attract the most FDI in India?
Major FDI sectors in India include infrastructure, IT, automobiles, pharmaceuticals, services, and textiles.

6. How does FDI impact India’s economy?
The impact of FDI includes job creation, technology transfer, capital inflow, and economic growth.

7. What are the benefits of FDI in India?
Benefits of FDI include improved infrastructure, global competitiveness, industrial growth, and export expansion.

8. Is 100% FDI allowed in India?
Yes, 100% FDI is allowed in many sectors under the automatic route, subject to sector-specific conditions.

9. What is the role of FDI policy in India?
FDI policy India regulates foreign investment limits, routes, and sector-wise guidelines.

10. Why is FDI important for developing countries like India?
FDI helps developing economies by providing capital, employment, advanced technology, and global market access.

11. What is the difference between FDI and FPI?
FDI involves ownership and control, while FPI involves passive investment in financial assets.

12. Who regulates FDI in India?
FDI in India is regulated by the Government of India and DPIIT under FEMA guidelines.