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FDI inflows into India contracted by 38 per cent to $22.42 billion in 2012-13 compared with $35.12 billion of FDI inflows the country witnessed in 2011-12, as per the data released by the Department of Industrial Policy & Promotion (DIPP).
The top six sectors which received large FDI inflows during 2013-14 were: Services ($4.83 billion), Hotel and Tourism ($3.25 billion), Automobiles ($1.53 billion), Metallurgical ($1.46 billion), Construction ($1.33 billion) and Pharmaceuticals ($1.12 billion).
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FDI inflows in FY13 |
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Sector |
$billion
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Services |
4.83
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Hotel & Tourism |
3.26
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Automobile |
1.54
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Metallurgical |
1.47
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Construction |
1.33
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Drugs & Pharma |
1.12
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Power |
0.54
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Computer Software & Hardware |
0.49
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Telecommunications |
0.30
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Chemicals (Other Than Fertilizers) |
0.29
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Mauritius remains the largest source country in terms of value of FDI inflows into India. In all, India received FDI worth $9.49 billion from Mauritius. The country was followed by the UK ($7.87 billion), Singapore ($5.25 billion), Japan ($2.97 billion) and the US ($1.11 billion).
In the last few months, the government unveiled major FDI reforms and also consolidated the FDI policy into a single document. Those reforms have failed to spur the quantum of FDI inflows.
The FDI policy changes effected by the Indian government in September 2012 allowed 51 per cent FDI in multi-brand retail. The policy reforms though enthused the foreign multi-brand retail chains, the ambiguity in the FDI policy and also to the mandatory conditions laid out for foreign investors have made the foreign companies to adopt a wait and watch policy before announcing big investment plans.
The policy states that foreign retailers who want to set up retail stores in India have to mandatorily invest at least 50 per cent of the total FDI inflows brought in 'backend infrastructure' within three years of the first tranche of FDI wherein backend infrastructure includes capital expenditure on agriculture market produce infrastructure and others.
Foreign retailers also have to adhere to minimum sourcing requirement of 30 per cent from domestic small and medium enterprises. Moreover, any entity with FDI can only set up shop only in those states that have allowed FDI in retail.
So far only 11 states/union territories have allowed FDI in multi-brand retail. They are Andhra Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman & Diu and Dadra and Nagar Haveli.
The Central Government also hiked FDI in single brand retail from 51 per cent to 100 per cent. IKEA's proposal, which will bring in $1.9 billion over the next 10-15 years through single brand retail, was recently approved by Cabinet Committee on Economic Affairs.
FDI policy reforms also allowed foreign airlines to pick up 49 per cent stake in domestic airlines. Following which the Jet-Etihad deal was struck. AirAsia's proposal to form a budget airline in a JV with the Tata Group and Telstra Tradeplace has also been cleared by the Central Government.
If India wants to increase the FDI inflows in the coming years, the central government should clear the ambiguities that confuse the foreign investors and create an investment friendly environment.
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