History of FDI Reforms in India

FDI reforms In 1990’s

From independence in 1947 till 1990’s, FDI policies did not had any consistent direction. NEP in 1990’s aimed at creating a conducive environment for foreign investors. Economic reforms undertaken since 1991 have influenced both India’s industrial policy and its external relations. These reforms of 1991 were big twist in policy approach which was changed to attract FDI to modernize India’s industrial base and to improve export competitiveness.

In the past, during the period of reforms, a number of controls were dismissed in area of industrial policy e.g. delicensing, removal of MRTP constraints and opening areas for private sector which were earlier reserved for public sector. Also, Import quotas were removed (fully in 2001), foreign investment was liberalized, restrictions on financial transactions were eased and the Foreign Exchange Regulation Act (FERA) was removed. Further FDI policy is now reviewed regularly and changes are also made time to time. FDIs can now enter in most of the sectors under automatic approval route except for few sectors. These restrictions have to be imposed due to some security reasons and for encouraging domestic investment.

Significant FDI reforms that led to Economic Growth

1. Industrial licensing has been abolished and many sectors were opened for private sector and foreign participation also.
2. Conditions related to technology were also removed such as restrictions on direct investment in low technology areas. There is provision for automatic permission for high technology agreements.
3. Reserve Bank of India (RBI) has introduced an automatic approval process for 100 percent foreign investment in priority sectors.
4. FERA (Foreign exchange Regulation Act) was replaced with much liberal Act FEMA (Foreign Exchange management Act) in 1999.
5. There is removal of high local content requirement and export obligation conditions except for 22 consumer goods. Conditions on 22 consumer goods were subsequently withdrawn in the year 2000.
6. Major institutions are set up such as foreign investment promotion Board (FIPB), Foreign Investment implementation Authority (FIIA) and Secretariat for Industrial Assistance (SIA) to promote and help inflow of capital/FDI.
7. Privatization of Public Sector was done.
8. Many bilateral investment and double tax avoidance agreements were signed to help foreign investors. These types of agreements are signed with nearly 69 countries.
9. Tax concessions and subsidies were also offered by Center and State Governments to attract foreign investors.
10. Institutions were also established to help FDI project at State Level.