Why in news?
=>Mauritius remained the top source of foreign direct investment (FDI) into India in 2017-18 followed by Singapore, whereas total FDI stood at $37.36 billion in the financial year, a marginal rise over the $36.31 billion recorded in the previous fiscal.
=>While FDI from Mauritius totalled $13.41 billion as against $13.38 billion in the previous year, inflows from Singapore rose to $9.27 billion from $6.52 billion. FDI from the Netherlands declined marginally to $2.67 billion as against $3.23 billion a year earlier.
=>Provisional data for the fiscal ended March revealed that FDI into the manufacturing sector witnessed a substantial decline to $7.06 billion, as against $11.97 billion a year earlier.
=>However, FDI into communication services rose to $8.8 billion in FY18 from $5.8 billion. The inflows into retail and wholesale trade also shot up to $4.47 billion as against $2.77 billion, while financial services too saw a rise to $4.07 billion from $3.73 billion in the previous year.
=>The fact that these sectors accounted for more than 50% of total FDI of $37.36 billion in 2017-18 reflects the global interest in new areas, including online marketplaces and financial technologies.
=>FDI in computer services was recorded at USD 3.17 billion as against USD 1.93 billion in the previous year. Inflows in real estate activities jumped four-fold to USD 405 million as compared to USD 105 million; while FDI in Education and R&D stood at USD 347 million versus USD 205 million in FY 2016-17.
=>Sectors like construction and mining witnessed a decline in FDI inflows during 2017-18, whereas electricity and other energy generation, distribution and transmission and restaurants and hotels recorded a slight increase in inflows.
What is FDI?
=>Foreign Institutional Inflows (FIIs) imply investments registered in a country outside of the one in which it is investing. It constitutes Foreign Direct Investment(FDI), Equity inflows, Non-Residing Indian (NRI) Deposits, etc. However, FDI has been the most attractive form of capital inflow.
FDI & Portfolio investment:
=>By definition, FDI is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.
=>Portfolio investment, on the other hand, is a hands-off or passive investment of securities in a portfolio, and it is made with the expectation of earning a return. It is distinct with FDI which involves taking a sizable stake in a target company and possibly being associated with its day-to-day management.
=>From a sectoral perspective, FDI has mostly flowed into the services sector, followed by the manufacturing sector. In India, foreign investment was mainly introduced in 1991 under the Foreign Exchange Management Act (FEMA). The two routes under which foreign investment can be made are the automatic route and the government route.
=>Historically, there has been a sea change in India’s approach towards foreign investment since the early 1990s. Pre-liberalisation, FDI through foreign collaboration was only allowed in specific sectors related to high technology.
=>A major shift occurred post-1991 reforms, whereby, restrictions were gradually removed in low technology areas. Over the last decade, reform measures have steadily gained momentum, as is evident from the ever-increasing volumes of FDI inflows being received in India.
Why FDI matters?
=>Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a major source of non-debt financial resource for the economic development of India.
=>Foreign companies invest in India to take advantage of relatively lower wages, special investment privileges such as tax exemptions, etc. For a country where foreign investments are being made, it also means achieving technical know-how and generating employment.
=>With several key indicators like corporate earnings, uptick in topline and consumer demand showing a marked improvement on the back of good and well spread monsoon, the investment sentiment is expected to gain momentum in the next few quarters and would further improve in the FY 2019-20.
Pic courtesy:The Financial Express
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