Foreign Direct Investment (FDI) In India (Since 1991) (2024)

During 1992-93 several additional measures were taken by the Government of India to encourage investment flows: direct foreign investment, portfolio investment, NRI investment and deposit and investment in global depository receipts.

Some of these measures are given below:

1. The dividend-balancing condition earlier applicable to foreign investment up to 51 per cent equity is no longer applied except for consumer goods industries.

2. Existing companies with foreign equity can raise it to 51 per cent subject to certain prescribed guidelines. Foreign direct investment has also been allowed in exploration, production and refining of oil and marketing of gas. Captive coal mines can also be owned and run by private investor in power.

3. NRIs and overseas corporate bodies (OCBs) predominantly owned by them are also permitted to invest upto 100 per cent equity in high priority Industries with reparability of capital and income. NRI investment up to- 100 per cent of equity is also allowed in export houses, trading houses, hospitals, EOUs, sick industries, hotels and tourism related industries.

4. Disinvestment of equity by foreign investors no longer needs to be at prices determined by the Reserve Bank. It has been allowed at market rates on Stock Exchanges from 15 September, 1992 with permission to repatriate the proceeds of such investment.

5. India has signed the Multilateral Investment Guarantee Agency protocol for the protection of foreign investment on 13 April, 1992.

6. Provisions of the Foreign Exchange Regulation Act (FERA) have been liberalized through an Ordinance dated 9 January 1993, as a result of which companies with more than 40 per cent of foreign equity are also now treated at par with fully Indian owned companies.

7. Foreign companies have been allowed to use their trade marks on domestic sales from 14 May, 1992.

The result of the new policy is quite encouraging. From August 1991 to December 1993, the Government approved 3467 foreign collaboration proposals including 1565 cases with foreign equity participation. The total value of equity in foreign investment proposals approved is Rs. 122.9 billion which is more than ten times of the Rs. 12.7 billion of foreign investment approved from 1981-90. About 80 per cent of the approvals are in priority sector.

Total capital inflows (including IMF transactions) has become more than double from $ 4.3 billion in 1992-93 to $ 9.2 billion in 1993-94, of which the share of foreign investment inflows rose from $ 433 million (14 per cent) to $ 4.1 billion (45 per cent). The contribution of foreign investment to capital inflows rose further in 1994-95 with an inflow of about $ 4.9 billion already under this account in the year 1994-95. Again in 1996-97, FDI flows were US $ 3.1 billion:

Portfolio investment, including GDRs, has responded swiftly, to rise from under $ 100 million in 1992-93 to nearly $ 35 billion in 1993-94 and was of the same order in 1994-95. There have been sharp increases in approvals of direct investment proposals, the value of which rising to $ 4.3 billion (Rs. 13590 crores) in 1994 from $ 325 million (Rs. 739 crore) in 1991.

The total Direct Foreign Investment (DFI) proposals approved since 1991 to 1996 amounts to $ 29.60 billion (Rs. 97777 crore), against just under $ 1.0 billion (Rs. 1274 crore) approved during the whole of the previous period (1981-90). But the actual inflows of FDI during the period 1991 to 1997 stood at $ 9.5 billion (Rs. 32137 crore) which accounts for 20.0 per cent of the total approvals. Fresh inflows from FIIs declined in 1997-98 and turned into net outflows of 458390 million in 1998-99.

Table 2 gives the picture of actual inflows and approvals of Foreign Direct Investment in India since 1991.

According to this table, approvals for FDI in 1991 were only US $ 325 million which gradually increased to $ 3.56 billion in 1993, $ 11.14 billion in 1996 and then to about US $ 15.7 billion during the 1997 and $ 55.1 billion in 1998. Again the actual inflows of FDI gradually increased from US $ 154,5 million (Rs. 351.4 crore) in 1991 to US $ 573.8 million (Rs. 1786.0 crore) in 1993 and then to US $ 2383 million (Rs. 8431 crore) in 1996 and finally to US $ 3.10 billion (Rs. 12085 crore) during 1997 and US $ 42.1 billion in 1998.

Actual inflows as per cent of approvals which was 48.0 per cent in 1991, gradually declined to 13.0 per cent in 1992 and then it increased to 22.0 per cent, 19.0 per cent and 21 per cent in 1994, 1995 and 1997 respectively. It was 21 percent in 1998. Again during the period 1991 to 1997 (upto November), total actual inflows of FDI was $ 11.9 billion as compared to that of total approvals of US $ 47.24 billion, which accounts for only 20.6 per cent of total approvals. Thus the foreign direct investment in India have recorded on phenomenal growth.

Among the various countries from which FDI inflow is coming to India, USA has emerged as the number one investor in India accounting for $ 8.58 billion of Foreign Direct Investment approvals out of a total of $ 33 billion cleared till the end of 1996-97 since the liberalisation process began. The FDI approvals for US investors had shown a spurt in the first three months of 1997 with the figure touching $ 1.3 billion till March 1998, followed closely by the UK at $ 700 million. South Korea at $ 484 million and Mauritius $ 264.9 million.

The total FDI approvals in the January to March 1997 period alone amounted to $ 5.7 billion. Other major investors during this period have been Japan ($ 141.6 million), the Netherlands p. ($ 73.1 million), Germany ($ 48.9 million), Australia ($ 29.8 million) and Switzerland ($ 27.4 million).

Between 1991 and 1998, the US had invested $ 8.58 billion in various projects, including many in the infrastructure sector. But actual inflow till 1996 has been quite nigg*rdly at only $ 532.5 million. Total FDI inflows between 1991 to 1998 stood at $ 5.6 billion as compared to FDI commitments of $ 33.078 billion from more than eleven countries including USA, UK, Germany, the Netherlands, Switzerland, South Korea and Thailand.

In February 1998, the RBI had given general permission to Indian companies and entrepreneurs to receive foreign investment and issue shares to their foreign partner without prior permission from RBI. But, they will have to file the relevant documents at the respective regional offices of RBI within 30 days from the dates of issue of such shares.

In order to simplify the existing procedure in respect of cases already approved by the Government of India, the RBI has now decided to grant general permission under the Foreign Exchange Regulation Act in respect of all such proposals.

According to the World Bank Report, that most of the FDI flows to India have been concentrated in power and fuel and more recently in telecommunication and infrastructure. The report observed that the net private capital flows to India amounted to 2.1 billion dollars in 1990, 1.9 billion dollars in 1991, 2.0 billion dollars in 1992, 3.5 billion dollars in 1993, 5.5 billion in 1994 and 4.4 billion dollars in 1995.

But flows of FDI in India is in no way comparable to China which obtains a much higher amount. The World Bank report observed that FDI flows in India is no comparison with China which received 8.1 billion dollar in 1990, 7.5 billion dollar in 1991, 21.3 billion dollar in 1992, 38.0 billion dollar in 1993, 46.6 billion dollar in 1994 and 44.7 billion dollar in 1995. During 1997-98 it was 39.9 billion dollars and 43.6 billion dollars in 1998-99.