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FDI Policy And Its Impact

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FDI Policy And Its Impact

Foreign direct investment (FDI) is an important driver of economic growth which helps in—sustaining high growth rate, increasing productivity, a major source of non-debt financial resources, and employment generation. A favourable policy regime and sound business environment facilitate FDI flows.

The government has taken various reforms to liberalize and simplifying the FDI policy to provide ease of doing business climate in the country that will also lead to larger FDI inflows. A number of sectors have been liberalized, including defense, construction, broadcasting, civil aviation, plantation, trading, private sector banking, satellite establishment and operation and credit information companies. By early 2017, the government had taken the following policy steps to promote FDI in the economy:

(i) Up to 49 percent, FDI permitted in insurance and pension funds (26 percent under automatic route) and defense sector.
(ii) 100 percent FDI permitted in the manufacturing of medical devices; the white label ATM and railway infrastructure.
(iii) 100 percent FDI allowed in the marketing of food products produced and manufactured in India (Union Budget 2016–17).
(iv) To undertake important banking sector reforms and public listing of general insurance companies undertake significant changes in FDI policy (Union Budget 2016–17).
(v) Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges (Union Budget 2016–17).
(vi) A new policy for management of the PSUs, including strategic disinvestment—this is supposed to have liberal provisions for the FDI (Union Budget 2016–17).

As per the latest Economic Survey 2017-18, India has performed very well in attracting foreign investment—

  • FDI policy reforms initiated in 2016- 17 brought most of the sectors under automatic route, except a small negative list. Total inflows of FDI during 2016-17 was the US $60.08 billion—the highest ever in a year (around 8 percent higher than the preceding year). By September 2017, the inflow was the US $33.75 billion.
  • Mauritius, Singapore and Japan have been top three countries the contributing 36.17 per cent, 20.03 per cent and 10.83 per cent respectively to the total FDI Equity Inflows of india during 2016-In terms of the Sectors receiving FDI Equity inflows, Services (Finance, Banking, Insurance etc.), Telecom, and Computer Software and Hardware have been the top three sectors with a share of 19.97 per cent, 12.80 per cent and 8.40 per cent respectively.

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