India to Consider Easing Rules for FDI and Overseas Investments

The finance minister Nirmala Sitharaman has proposed easing regulations for foreign direct investment (FDI) and overseas investments in the Union Budget 2024. This comes following a 3.49 percent decline in FDI, which fell to US$44.42 billion in FY 2023-24, from countries such as Mauritius and Singapore. The UNCTAD 2024 report revealed that India had dropped seven places to rank 15th on the World Investment Ranking.

Internal discussions are ongoing about further liberalizing FDI policies. Earlier this year, India permitted 100 percent FDI in space sectors like satellite manufacturing and operation, satellite data products, and ground segment and user segment.

The rules and regulations for Foreign Direct Investment and Overseas Investments will be simplified to facilitate foreign direct investments, nudge prioritization, and promote opportunities for using Indian Rupee as a currency for overseas investment. – Minister of Finance Nirmala Sitharaman, Union Budget 2024 announcement on July 23, 2024

DPIIT to formulate strict timelines for clearance of FDI proposals in priority sectors

The Department for Promotion of Industry and Internal Trade (DPIIT) will establish strict timelines for various government agencies and departments to expedite the clearance of FDI proposals in prioritized sectors, according to DPIIT Secretary Rajesh Kumar Singh. Despite having a standard operating procedure (SOP) for these clearances, delays persist due to non-adherence. Under the SOP, ministries and departments must take a decision on the proposals within 60 days of the application.

The idea is to cut short that (clearance and approval) process, we have not yet decided about the sectors where some liberalisation is possible, but certainly there is a view in the government that the processes, where the government route is involved which is through the ministries including DPIIT and the concerned ministries that approval process needs to be speeded up. – DPIIT Secretary Rajesh Kumar Singh, Speaking to the Press Trust of India (PTI)

Following the abolition of the Foreign Investment Promotion Board (FIPB) in May 2017, the responsibility for approving overseas investments under the FDI policy and Foreign Exchange Management Act (FEMA) regulations was transferred to the respective ministries and departments. The Foreign Investment Facilitation Portal (FIFP) was created to handle FDI proposals, which are now submitted exclusively through this portal managed by the DPIIT, the designated nodal department under the Commerce Ministry.

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Regarding the Budget announcement to reduce corporate tax for foreign firms from 40 percent to 35 percent, the DPIIT Secretary told PTI that this measure will narrow the tax disparity between Indian and foreign corporations. This reduction is expected to attract more foreign investment and encourage the expansion of existing foreign companies in India.

Additionally, Singh mentioned that customs duty rationalisation, particularly in sectors like electronics and leather recommended by the DPIIT, will address the issues of an inverted duty structure. This structure, where inputs are taxed at higher rates than finished products, leads to credit build-up and increased costs. Rationalisation will help boost domestic manufacturing by correcting these imbalances.

Global dip in foreign direct investment trends

The inflow of FDI reduced from US$46.03 billion in FY 2022-23 to US$44.42 billion in FY24. Decline in FDI was noted from key source markets like Mauritius, Singapore, US, UK, UAE, Cayman Islands, Germany, and Cyprus.

Per the UNCTAD 2024 report, FDI inflows coming to India dropped from US$49.3 billion in 2022 to US$28.1 billion in 2023.

India joins France, Australia, China, and the US in terms of the absolute drop in FDI recorded.

While India dropped ranks, Brazil, Canada, Germany, and Mexico moved up the UNCTAD’s global index. However, India is still a top destination for greenfield project deals and international projects announced.

In 2023, India secured the second highest number of international project deals at 163, following the US at 334. That year, India registered 1,058 greenfield projects – ranking fourth after the US, UAE, and UK.

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