India's FDI reached $42.1 billion in the first half of the fiscal year, boosted by a proactive policy framework, dynamic business environment, and increased international competitiveness. The top five sources of FDI for FY 2023-24 are Mauritius, Singapore, USA, Netherlands, and Japan. India's ranking in the World Competitive Index 2024 has risen to 40th.
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The recent 26% increase in FDI to $42.1 billion during the first half of the current fiscal year is due to India's proactive policy framework, dynamic business environment, and increasing international competitiveness.
It refers to a company or individual's investment in business interests in another country. This investment generally involves acquiring significant ownership in a company or establishing new business operations such as subsidiaries, joint ventures, or branches.
FDI is defined as an investment in which a foreign entity acquires 10% or more of a company's post-issue paid-up capital in India.
The Department for Promotion of Industry and Internal Trade (DPIIT) issues the Consolidated FDI Policy, which lays out the rules, guidelines, and procedures for FDI in India.
The Foreign Exchange Management Act (FEMA) governs foreign direct investment in India. It establishes the regulatory framework for foreign exchange and foreign investment, which is managed by the Reserve Bank of India.
Between 2014 and 2024, India received a total of USD 667.4 billion in foreign direct investment. The top five sources of FDI in India for FY 2023-24 are Mauritius (25%), Singapore (23%), USA (9%), Netherlands (7%), and Japan (6%).
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India has received $1 trillion in gross foreign direct investment (FDI) inflows since April 2000. India is becoming more and more attractive as a location for foreign investment due to a proactive policy framework, an expanding business environment, and growing international competitiveness.
FDI has made significant contributions to India's development goals by supplying non-debt financial resources, encouraging technology transfers, and generating employment opportunities.
Initiatives like "Make in India," liberalised sectoral policies, and the Goods and Services Tax (GST) have boosted investor confidence, strategic incentives and competitive labour costs continue to attract foreign investment.
Factors Driving the Change
India's ranking in the World Competitive Index 2024 has risen three places to 40th, from 43rd in 2021.
India was named the 48th most innovative country among the top 50 nations, rising to 40th out of 132 economies in the Global Innovation Index 2023, a significant improvement from 81st in 2015.
These rankings highlight the country's progress in improving its innovation ecosystem and competitiveness.
To encourage FDI inflow in India, the government has implemented an investor-friendly policy in which most sectors, with the exception of certain strategically important sectors, are open to 100% FDI under the automatic route.
To make tax compliance easier for startups and foreign investors, the Income Tax Act of 1961 was amended in 2024 to eliminate the angel tax and lower the income tax rate charged on foreign company income.
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PRACTICE QUESTION Q.Critically analyze the role of Foreign Direct Investment (FDI) in shaping India’s economic growth. (150 words) |
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