India: FDI policy review begins as inflows drop despite auto route

  • The government is examining India’s foreign direct investment policy to look for new areas that can be opened to overseas investors and sectors that face hurdles despite being on the automatic route.
  • The exercise comes after FDI equity inflows into India fell in 2018-19, for the first time in six years, with a steep decline in telecom, pharmaceuticals and power.
  • FDI equity inflows into India declined 1% to USD44.4bn in 2018-19 from a record USD44.8bn in the 2017-18, data released by the Department for Promotion of Industry and Internal Trade on 28 May 19 showed.
  • Foreign investments fell 56% to USD2.7bn in telecommunications and 74% to USD266mn in pharmaceuticals. In the power sector, FDI shrank 32% to USD1.1bn. The declines came even though foreign investors can own up to 100% stake in telecom and pharma companies.
  • In telecom services, 100% FDI is allowed, with up to 49% permitted automatically. In pharmaceuticals, 100% FDI is allowed under the automatic route in greenfield projects and up to 74% in existing businesses.
  • Another official said the decline in inflows was marginal and should not be an issue of concern, although the department is analysing the reasons for the fall.
  • As per the official data, Singapore replaced Mauritius as the top source of foreign investment. FDI inflows from Singapore came in at USD16.2bn, double the amount of from Mauritius.
  • Sectors that recorded a growth in FDI were services (USD9.15bn), computer software and hardware (USD6.41bn), trading (USD4.46bn) and automobiles (USD2.62bn).

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