Impact of Foreign Direct Investment on Indian Economy
Foreign direct investment refers to an investment by a non-resident in the form of new equity capital or re-investment of earnings. In India, foreign investment can be traced back to the end of World War II when the government began encouraging it so as to spur growth of its industries and in turn, the country’s overall economy. There are two routes through which Indian companies receive foreign direct investment including automatic and government approval. Over the years, India has been able to receive foreign direct investment in quite a number of its sectors.
Mostly, foreign direct investment began with the Japanese companies. However, the UK has also been a major investor in various sectors in the country for several years now. India is today one of the best foreign direct investment destinations in the world attracting investors in telecommunications, pharmaceuticals, construction activities, computer software among others. Apart from Japan and the UK, other sources of foreign direct investment in India are Singapore, United States, and Mauritius among others.
The impacts of foreign direct investment are quite varied since the values have not been stable since the beginning. According to information obtained from the Journal of Management, Volume 5 Issue, 2013 (ACCMAN), foreign direct investment for the fiscal year 2009/10 was valued at US$25.88 billion. This represented a 5% drop from the previous fiscal year. In the first months of fiscal year 2010/11, the FDI shot upwards to hit US$7.78 billion from the $4.4 billion in the previous year.
In 2013, the government relaxed it norms on foreign direct investment in various sectors like telecom, power exchanges, defense, stock exchanges and PSU oil. In the same year, the government received an application from UK-based Tesco in collaboration with Trent of Tata Group to invest US$110 million for starting a supermarket chain. This presented a boost to eh retrial sector in India. In the same year, Air Asia and Singapore Airlines also joined hands with Tata Group to launch new airline services in order to boost the civil aviation sector. Besides, Etihad also acquired 24% stake in the Jet Airways at a cost of US$ 319.39 million.
Currently, it is estimated that India has been able to receive a total foreign investment of about US$ 306.88 billion starting fiscal year 2000to 2013. 94% of the amount has been generated within the last nine years. The largest share of foreign direct investment that was valued at US$172.82 was earned between 2009 to September 2013. During the fiscal year 2012/13, India was able to attract foreign direct investment of US$22.42 billion. The biggest beneficiaries of foreign direct investments in India have been the pharmaceuticals, construction, chemicals and services industries. In the period between January to September 2013, India witnessed acquisitions and mergers worth about US$26.76 billion in India. Currently, the country is eyeing additional foreign direct investments from countries like New Zealand, UAE, Switzerland, and France in various sectors in order to even grow its economy further.
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