Foreign Direct Investment

Foreign Direct Investment-Governing Laws, Developments and Existing trends

Foreign Direct Investment (FDI) refers to the net inflows of investment expenditure towards the acquisition of a lasting management interest usually 10% or more in an institution or an enterprise with established or developed operations in a market of the economy other than that of the investor. Foreign direct investment is a transitional catalyst that initiates the conversion of an economy from a closed economy to an open market that allows for and accepts investments from foreign entities, mostly institutional investors so as for them  to have a sizable impact on the development of the economy.

After opening the doors to Indian economy in the liberalization phase, the economy grew at a steady pace but after a period of sustained growth, the graph stagnated due to limitations that were still in place obstructing the complete freedom of foreign investors in India. Further it was on the recommendation of the N K Singh Committee set up in 2002 suggesting that the limitations on FDI be continued which led to the tenth and the subsequent five year plans dropping proposed changes in the existing FDI policy .It was the UPA government in 2011 who then started the pushed towards more liberal laws by recommending and allowing 51% FDI in multi brand retail and raising the existing ceiling on single brand retail from 51 % to hundred percent.

With a shift in the leadership up top  in the Indian parliament ,the new government under the BJP regime has taken a more favorable and aggressive outlook towards development of FDI policies in India. The BJP government though has not made any changes and has stuck to the existing FDI laws in India yet has managed to make a great impact.

The laws at present in India that regulate our foreign investment policies are Foreign Exchange Management Act, 1999 (FEMA) ,  Regulations Securities and Exchange Board of India Act, 1992 ,Regulations Foreign Trade (Development and Regulation) Act, 1992, Companies Act, 1956  Indian Contract Act, 1872, Arbitration and Conciliation Act, 1996 , Civil Procedure Code, 1908 , Income Tax Act, 1961  , Competition Act, 2002. It is a combination of these laws that the foreign investment money finds its way into the Indian markets.

The recent trends have seen a more pro FDI policy by the government. In October,2014 Prime Minister Narendra Modi launched the ambitious Make In India programme which was in relation to persuade other investor outside India to invest in India and the Cabinet Committee on Economic Affairs was set up  to manage and give its approval to the foreign investments in India. This project is a step ahead in India’s investment policies as it has set the lion roaring with a 56% jump in the FDI and the CCEA in less than a year has cleared proposals worth Rs 1,827.24 crore into the country. Further, the government most recently has allowed FDI in the aviation sector and a recommendation is pending with regard to allowing 100% FDI in medical sector, these developments indicate there is surely  a great scope for FDI in India.

A more liberal view towards a greater role of foreign money in the development of our country and existing infrastructure would be instrumental in India’s progress as the world being a stakeholder in India’s success, it will not only be us but the world awaiting India’s rise.

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