Foreign Direct Investment in India: Overview
In Economics parlance, the Indian economy is said to be a mixed economy. That is, it is neither liberal like most of the western countries nor rigid as that of communist nations. There were a group of private capitalists in Bombay like Tata, Dalal, Godrej even before India attained her freedom from the colonial British Empire. They envisioned an economic plan for India, famously called “Bombay Plan 1944”.
Just after Independence, the national leaders released the Industrial Policy 1948. Though the policy reads as a mixed economy, India was actually almost a rigid economy till 1991 economic crisis. India caught between the deep sea and the devil. Though not willingly, India allowed reforms known as LPG reforms that led to FDIs pour in.
By the way, FDI means Foreign Direct Investment. Through FDI an entity (person or company) can control the ownership of a company or can expand its business in another country. MNCs like Google, Oracle, Microsoft and sundry are simple examples to understand FDIs.
Further, the FDIs are allowed up to 49% or 100% depending on the sensitivity of the sector. In the Indian context, the FDI’s are partially allowed in Atomic Energy and Railways and totally prohibited in areas like gambling and betting, Lottery, Chit Funds and Nidhi Company, according to the latest reforms through Make In India and the subsequent the FDI policy 2016. The policy relaxed the norms further to get more FDI’s in 25 sectors.
And in general, the FDIs are allowed through two ways. One is an automatic route, which requires no prior government or the Reserve Bank of India approval, and the other government route. The Foreign Investment Promotion Board (FIPB) oversees the investments. Only a handful of key sectors like Railways, Atomic Energy accept investments through the government route.
And what do FDIs mean for a layman? FDIs generate employment and boost the economy which is otherwise rigid and stagnated. Moreover, it is not easy to withdraw investments like Foreign Institutional Investor (FIIs) as and when wanted.