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SYDENHAM INSTITUTE OF MANAGEMENT STUDIES RESEARCH AND
ENTREPRENEURSHIP EDUCATION
INCREASING FDI LIMITS IN INDIA
GAURANG JARDOSH
Email - [email protected]
Contact number - 9833588448
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INCREASING FDI LIMITS IN INDIA
FDI in general terms refers to capital inflows from abroad that
invest in growing economies and
are considered a source of economic development, modernization,
employment generation and
giving rise to healthy competition. FDI is usually preferred to
other forms of external finances asthey are more stable and are
said to facilitate transfer of skill, knowledge and other
factors.
Background
The FDI story for India began in 1991 and announced the New
Industrial Policy to open doors
for liberalization. Today India has been ranked third in global
foreign direct investments in 2009
and will continue to remain among the top five attractive
destinations for international investors
during 2010-11, according to United Nations Conference on Trade
and Development.
India attracted FDI equity inflows of US$ 2,214 million in April
2010. The cumulative amount
of FDI equity inflows from August 1991 to April 2010 stood at
US$ 134,642 million, according
to the data released by the Department of Industrial Policy and
Promotion (DIPP).Over the years
we have witnessed tremendous development in the key sectors
owing to FDI infusion.
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34825 35180 34167
0
5000
10000
15000
20000
25000
30000
35000
40000
2006-07 2007-08 2008-09 2009-10
FDI InflowsFDI Inflows
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Current Scenario
Foreign Direct Investmentin India
In India, Foreign Direct Investment Policy allows for investment
only in case of the following
form of investments through financial alliance, joint schemes
and technical alliance, private
placements or preferential allotments.
Foreign Direct Investmentin Indiaisnotallowedunderthe
followingindustrialsectors:
y Arms and ammunitiony Atomic Energyy Rail Transporty Mining of
metals
Upto 100 percentequityisallowedinthe followingsectors
y Export Trading Companiesy Hotels and Tourismy Hospitalsy
Shippingy Deep Sea Fishingy Oil Explorationy Powery Housing and
Real Estatey Highways, Bridges and Ports
Other Sectors
Drugs & Pharmaceuticals - FDI of 100 per cent is
allowed.
PrivateBanking - FDI of 74 per cent is allowed.
Insurance Sector - For the Insurance sector FDI allowed is 26
per cent through automatic route.
Telecommunication - FDI is 49 per cent.
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Top 5 Sectors Attracting FDI (2009-10) $ mn
SECTOR INVESTMENT
Service Sector 4392Construction 2868
Housing and real Estate 2844
Power 1437
Automobile 1177
FDI brings in following benefits -
y Employmenty Technological Knowhowy Jointventures,
Collaborations
India should look forward to tap the opportunity to attract
inflows at times when other
destinations look vulnerable. Increasing FDI limits in some
sectors can unleash the potential and
support growth process in a balanced manner as many sectors are
facing constraints.
Top 5 countriesinvesting In India ($ Mn)
Country Investment
Mauritius 10376
Singapore 2379
US 1943
Cyprus 1623
Japan 1183
Many sectors present opportunities in India but this article
will concentrate on Retail, Education
and Insurance Sectors which are ripe for accepting FDI.
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FDI & EDUCATION SECTOR
Education sector is an ideally placed for FDI infusion with low
literacy rates and large
population size in India. Foreign Direct Investment (FDI) in
education is allowed in India under
the automatic route, without any sectoral cap, since February,
2000. There is no offshore campus
of any foreign university in India. In India there are more than
125 institutions running technical
programmes in collaboration with foreign universities and
institutions.
Opportunity
There are only 10.5 million students enrolled in all higher
education institutions in India that is
just 11 per cent of the relevant age group (17 to 23)
population. According to 2004-05 survey
80,466 Indian students were enrolled in USA universities and
15,000 Indian students were
enrolled in the UK universities.
For FDI
India is suffering problem of Brain Drain since years, it can be
controlled to certain extent by
providing world class education here. Local institutions will be
compelled to improve their
curriculum as foreign players bring new methods and practices
and degrees awarded here will
become internationally accepted and recognized. The most
important point being establishment
of new education institution and infrastructure and also
generate employment.
Against FDI
FDI in education sector may raise alarm for domestic institution
as they might attract best faculty
and teachers by providing them best packages. Financially better
off students may also be tapped
by them as the first motive is to earn profit. Besides, large
population in India cannot afford
expensive education and may not benefit from the entry of
foreign players. When foreign players
charge exorbitant fees, the local institutions may also retort
to same and completely ignore the
poor class and result in urban rural divide.
Noteof Caution
While allowing FDI in education sector, Government should put
some restrictions in terms of
commercialisation of the sector. Besides the accreditation norms
should be kept more stringent
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and specific. Care should also be taken not to dilute the
quality of education in wake of
commercialization.
FDI & INSURANCE Sector
The US$ 41-billion Indian life insurance industry is considered
the fifth largest life insurance
market, and growing at a rapid pace of 32-34 per cent annually,
according to the Life Insurance
Council.Foreign equity up to 26% is allowed in the insurance
sector. The entry of foreign partners has
resulted in the sector attracting FDI of US 543 million as on
31st March, 2007. On account of
competition from private insurance players, the market share of
state owned insurance
companies like GIC, LIC and others have come down to 70% in last
4-5 years from over 97%.
However, the reach of industry is only around 15% according to
IRDA which poses tremendous
opportunities for new companies. The foreign players may look to
partner with domestic players
for local knowledge and in turn share best practices. It is also
impossible to cater to the large
population without more players pumping in the money. Bringing
in more players may also
create opportunity for other business like IT and other related
service providers.
Opportunities
General Insurance
This business of General Insurance sector has picked up off
late. Public sector players posted
13.85 per cent growth in gross premium in 2009-10. At the same
time, private players recorded a
12.82 per cent increase in gross premium till March 2010.
Further nearly 30mn vehicles policies
were issued and total premium of US$ 1.83 billion was
collected.
Health Insurance
Health insurance is lucrative consideration for both existing as
well as new players and according
to a forecast by private research firm as it is expected to grow
at compounded annual growth rate
of 25% and total premium between April and December 2009 was US$
1.35 billion, up from
US$ 1.12 billion, an increase of 20 per cent, as per figures
released by the regulator. This means
that there is enough room for new players.
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Products like Bancasssurance has also found fancy of many
private firms. It is forecasted that
bancassurance will play a crucial role in the overall
development of the Indian insurance sector
with the channel expected to generate 40 per cent of private
insurers premium income by 2012.
The Last Word
FDI is entrusted with additional responsibility of development
in emerging economies. The
growth has to be balanced and inclusive. This further calls for
making policies suitable to meet
the end result. The most important point to consider here is
that the Introduction of FDI should
garner competition and not result in elimination of present
entities.
References
FDI Boon or Bane ICFAI
Attracting FDI to India Ramkishen S.Rajan, Sunil, Rongala and
Ramya Ghosh
Business.mapsofindia.com
www.ibef.org
www.ibef.org
