What are the key provisions of the recent amendments to India’s FDI policy and how do they impact foreign investors?
- In recent years, there have been certain amendments that have been introduced by the Government in order to further liberalise the FDI regime specifically in sectors such as insurance, telecom, defense, petroleum & natural gas sector.
- Such amendments along with campaigns like the “Make in India” and “Digital India” campaigns have resulted in increased FDI inflow.
- India has remained an attractive market for foreign investors in terms of short- and long-term prospects. India has also developed excellent government efficiency. Its developments in government efficiency are primarily due to relatively stable public finances (despite COVID-induced challenges) and optimistic sentiment among Indian business stakeholders.
- It is estimated that all these factors together will help India attract FDI worth US$ 120-160 billion per year by 2025.
What is the latest position vis-à-vis foreign investment in specific sectors in India, such as e-commerce, fin-tech/digital payments, and/ defense?
- In the E-commerce sector, 100% FDI is permitted under the automatic route for the marketplace model of e-commerce activities. However, FDI is not permitted for the inventory-based model of e-commerce activities.
- 100% FDI is permitted in the FinTech and digital payments space. The Government has actively promoted FDI in the FinTech sector through a number of programs and initiatives, including the Make in India campaign, and the Digital India campaign.
- One of the major objectives of Digital India campaign to achieve “Faceless, Paperless, Cashless” status.
- During the last 3 years, digital payment transactions have registered unprecedented growth in India. Easy and convenient modes of digital payment, such as Bharat Interface for Money-Unified Payments Interface (BHIM-UPI); Immediate Payment Service (IMPS); pre-paid payment instruments (PPIs), etc. have revolutionized payments in India across the board. Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) control FDI in the FinTech sector in India.
- For FinTech businesses operating in India, RBI has released guidelines that cover rules for electronic payments, know-your-customer requirements, and data localization.
- RBI has established a regulatory sandbox for FinTech businesses to test their goods and services in a supervised setting.
- Further, in the defense sector, FDI up to 49% is permitted under the automatic route and government route beyond 49% wherever it is likely to result in access to modern technology or for other reasons to be recorded, subject to conditions.
What are the latest FDI trends in India?
- In FY 2023, foreign investors showed keen interest in multiple sectors in India, with the highest FDI inflows seen in computer software and hardware, attracting investments worth US$9.39 billion. The services sector also received significant foreign investment, totalling US$8.70 billion, covering financial, banking, insurance, and business services. Singapore accounted for the maximum inward FDI in India, followed by Mauritius, the US, UAE, and the Netherlands.
- It is to be noted that most sectors in India allow FDI through the automatic route.
- India remains a bright spot in the world economy and the Indian market is key for global firms as they strategize the diversification of their supply chains beyond China.
India has several growth factors that continue to create prospects for greenfield and brownfield investment – a large labour market, enabling policy environment, and expanding digital economy.