India was able to retain its top position in greenfield foreign direct investment (FDI) by beating China and the United States for the second year in a row. The Government’s continuous efforts to improve the FDI climate in the last year have achieved desired outcomes. As promised in the Union Finance Budget, the Foreign Investment Promotion Board (FIPB) has now been abolished. India’ economic growth forecast also remains positive. Here are some of the key highlights relating to FDI and economy in India:

India Remains Top FDI RecipientIndia retained its numero uno position as the world’s top most greenfield FDI investment destination for the second consecutive year, attracting $62.3 billion in 2016, says said the FDI Report 2017 compiled by FDI Intelligence, a division of The Financial Times Ltd. The first foreign investment key trend spotted in the report states that India remains ahead of China and the US as the world’s top destination for greenfield FDI. India’s first made the pole position last year which was reported by Asia Law Portal in April 2016.

FDI by capital investment saw an increase of 2 per cent to $62.3 billion in 809 projects during 2016 in India. The global investment landscape, the report said, has changed considerably in 2016 as FDI gravitated to locations experiencing the strongest economic growth, while locations in recession or facing high levels of uncertainty saw major declines.

FIPB Abolished – The Central Government cabinet approved dismantling of the Foreign Investment Promotion Board (FIPB), marking a watershed in India’s overseas investment framework, giving a major boost to ‘Make in India’ and easing the flow of foreign capital into the country. This decision resulted from the announcement made in the Union Finance Budget in February, as reported by Asia Law Portal in March 2017. This crucial step resulted in removal of a layer of decision-making for foreign direct investment (FDI) approvals in eleven sectors that needed prior government approval. FDI proposals will now be cleared by the ministries and departments concerned in these sectors. In sectors where the government has security concerns, the proposals will also be vetted by the home ministry.

The Department of Industrial Policy and Promotion (DIPP) will notify the standard operating procedure for processing applications in the next 60 days. DIPP will also allocate applications to the ministries concerned and track progress. Line ministries can approve proposals but any rejection will have to be concurred with by DIPP. Pending cases will be decided now by the ministries concerned.

India’s Economic Growth Forecast – Various international financial institutions have given a thumbs-up to growth of the Indian economy. While there were some concerns around last year’s performance but the factors affecting were temporary in nature.

  • Asian Development Bank (ADB): India’s economic growth slowed to 7.1% below 7.9% growth in 2015, partly due to currency demonetization. While many reasons came together to contribute, the factors as determined by the ADB were excess production capacity, problems that past overinvestment left on corporate balance sheets, and new bank lending inhibited by too many stressed assets. Moderately higher growth is projected as consumption picks up and government initiatives boost private investment. In 2017, the economic growth is projected to pick up 7.4%, primarily on higher consumption.
  • The International Monetary Fund (IMF) also retained its GDP growth projection of 7.2% for 2017-18. In its biannual World Economic Outlook (WEO), it increased India’s growth estimate for 2016-17 to 6.8%, from 6.6% estimated in January, while maintaining that economic activity had slowed primarily because of the temporary negative consumption shock induced by cash shortages and payment disruptions from the currency exchange initiative. “Beyond the immediate challenge of replacing currency in circulation following the November 2016 currency exchange initiative, policy actions should focus on reducing labour and product market rigidities to ease firms’ entry and exit, expand the manufacturing base, and gainfully employ the abundant pool of labour,” IMF said.

World Bank Study Scope Increased – The World Bank has agreed to widen the scope of the ease of doing business rankings for India by expanding it to eight more cities. Nirmala Sitharaman, Central minister of state (independent charge) for commerce and industry, said the move would improve the quality of the index as the survey will cover 10 cities. At present it is restricted to two cities—New Delhi and Mumbai. India has been very keen to improve its position in the ease of doing business rankings conducted by the World Bank. At present, India is ranked 130 and is seeking to improve this to 90.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra is an India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel with a global research firm in Delhi, India; views expressed are personal; he can be reached at sourish24x7@gmail.com; Twitter: @sourish247

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