8 Measures to Promote FDI

Increasing Foreign Direct Investment (FDI) in India has been one of the focus areas for the Government of India to generate employment and increase GDP. Various relaxations have been provided for Foreign Investors by the present Government and the 2016 Budget has also proposed new changes to increase FDI in India.

FDI in Insurance

The 2016 Budget has proposed to allow FDI under the automatic route for upto 49% in the insurance and pension sectors, subject to the extant guidelines on Indian Management and control to be verified by the Regulators.

FDI in Asset Reconstruction Companies

It has been proposed in the 2016 Budget to permit 100% FDI under the automatic route in Asset Reconstruction Companies. Asset reconstruction companies manage and to make profitable those assets which have been underperforming or have become formally classified as Non-Performing Assets (NPA). Further, Foreign Portfolio Investors (FPIs) will permit upto 100% of each tranche in securities receipts issued by ARCs subject to sectoral caps. The increase in FDI limit on Asset Reconstruction Companies will help the Banks reduce the NPAs on their books.

FDI in Stock Exchanges

Investment limit for foreign entities in Indian stock exchanges will increase from 5% to 15% on par with domestic institutions. The increased flow of FDI into the stock exchanges will help Indian stock exchanges globally compete and adopt the latest technologies and global market practices.

FDI in Public Sector Enterprises

The existing 24% limit for investment by Foreign Portfolio Investors in Central Public Sector Enterprises listed in stock exchanges, other than Banks, will be increased to 49% to remove the need for prior approval of Government for increasing the Foreign Portfolio Investors investment.

FDI in the Financial Sector

The 2016 Budget has proposed to allow FDI under automatic route in activities which are regulated by financial sectors regulators and are beyond the 18 specified NBFC activities.

Residency for Foreign Investors

Foreign investors in India will soon accord the Residency Status, subject to certain conditions to promote the Make in India initiative and make India a global investment destination. Currently, foreign investors can only obtain a business visa for upto 5 years and there is no provision for obtaining residency status.

Centre-State Investment Agreement

To effectively implement Bilateral Investment Treaties signed by India with other countries, the Hon'ble Finance Minister has proposed to introduce a Centre-State Investment Agreement in the 2016 Budget. The Investment Agreement will ensure fulfilment of obligations of the State Government under the Treaties and those States which sign the agreement with more attractive destinations for investment by Foreign Investors.

Expanding Eligible Instruments

The basket of eligible FDI instruments will extend to include hybrid instruments, subject to certain conditions.

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Frequently Asked Questions

Common questions about FDI Promotion Measures in India: Enhancing Economic Growth.

The 2016 Budget proposed several measures to promote FDI in India, including allowing up to 49% FDI under the automatic route in the insurance and pension sectors, permitting 100% FDI under the automatic route in Asset Reconstruction Companies, increasing the investment limit for foreign entities in Indian stock exchanges from 5% to 15%, and allowing FDI under the automatic route in activities regulated by financial sector regulators beyond the specified NBFC activities.

Allowing 100% FDI in Asset Reconstruction Companies is expected to help banks reduce their Non-Performing Assets (NPAs) by enabling these companies to effectively manage and revive underperforming or non-performing assets. Additionally, Foreign Portfolio Investors (FPIs) will be permitted to invest up to 100% in each tranche of securities receipts issued by ARCs, subject to sectoral caps.

The proposed increase in the investment limit for foreign entities in Indian stock exchanges from 5% to 15% is expected to help Indian stock exchanges compete globally, adopt the latest technologies, and implement global market practices. The increased flow of FDI into the stock exchanges will provide them with access to more capital and resources.

The proposed Centre-State Investment Agreement aims to ensure that state governments fulfill their obligations under the Bilateral Investment Treaties signed by India with other countries. States that sign this agreement are expected to become more attractive destinations for foreign investment, as it will provide greater confidence and assurance to foreign investors.

The proposal to grant residency status to foreign investors in India, subject to certain conditions, is intended to promote the 'Make in India' initiative and make India a more attractive global investment destination. Currently, foreign investors can only obtain business visas valid for up to 5 years, and there is no provision for obtaining residency status.

The proposal to expand the basket of eligible FDI instruments to include hybrid instruments, subject to certain conditions, is expected to provide foreign investors with more investment options and opportunities. Hybrid instruments combine features of both debt and equity instruments, offering potentially higher returns with varying risk profiles.

The proposed increase in the investment limit for Foreign Portfolio Investors (FPIs) in Central Public Sector Enterprises (CPSEs) listed on stock exchanges, from 24% to 49%, aims to remove the need for prior government approval for increasing FPI investment. This move is expected to attract more foreign investment in CPSEs and provide them with greater access to capital.

The proposal to allow FDI under the automatic route in activities regulated by financial sector regulators, beyond the 18 specified NBFC activities, is expected to open up more opportunities for foreign investment in the financial sector. This move is likely to attract more foreign capital and expertise, promoting the growth and development of the financial services industry in India.