What is FDI?
Foreign Direct Investment (FDI) is when a foreign investor buys shares in a company in India that gives it the right to get involved in the management of the company. The controlling rights depend upon the amount of investment and its percentage share.
When a foreign investor simply buys the share of a company without any management control or involvement, it is called Foreign Institutional Investment (FII).
FDI is always the preferred form of investment, as it commits the investor to the project and it is not easy to pull out your money at short notice. Whereas, in the case of FII, the money can be pulled out of the country at any time, by simply selling the shares on the stock market.
Country-wise share of FDI inflows into India
According to Department of Industrial Policy and Promotion (DIPP), the total FDI equity inflow into the country between the year 2000 and 2014, was US$ 331,923 million. This includes equity inflows, re-invested earnings and other capital.
The country-wise FDI equity inflows into India from the year 2000 to 2011, was as follows:
Mauritius had the largest share of FDI investment inflow into India at 42%. This was followed by Singapore at 9%, USA at 7%, UK at 5% and Netherlands at 4%.
It is interesting to note that the maximum investment was flowing in from Mauritius, which is a small island nation with very little technology or industrial activity on the island. But since it is a tax haven, i.e. investment flowing through Mauritius is exempt from taxes in India, many international investors were routing in their investment through Mauritius to take advantage of the tax exemption.
Similarly, Singapore too is a small country, though it does indulge into some high technology-oriented manufacturing, it is not capable to invest the kind of capital inflows that were taking place. Singapore is a leading financial hub, just after New York and London, and therefore it is not surprising that the level of flows from here has been significant.
Another point to note is that USA, the world's largest economy had only 7% share. Also, the list did not include highly industrialised countries such as China, Japan, Germany and France. In the aftermath of the Modi government taking over in India this year, there has been a significant increase in excitement amongst the developed nations, who are now viewing India has a good investment destination and would like to benefit from the Modi administration's investors -friendly policies. In the next three years, there will be an increase in FDI inflow from USA, Japan, China, Germany and France, besides EU and countries like Russia.
In FY 14, the highest FDI equity inflow came from Singapore at US$ 5,985 million, while Mauritius, at second place, contributed US$ 4,859, followed by UK at US$ 3,215 million and the Netherlands which sent in US$ 2,270 million.
Sector-wise FDI in FY 14, saw the maximum FDI inflow in the Services sector at US$ 2,225 million, this was followed by Construction sector that attracted US$ 1,226 million and Telecommunication sector that received US$ 1,307 million.
Sectors in India that attracted the most FDI Equity inflows into India, between the year 2000 and 2011:
Services sector drew the maximum investment at 21%. This was followed by both the IT sector (computer hardware & software) and Telecommunication sector, at 8% each. Housing & Real estate sector drew 7% and the Construction sector too attracted 7%.
However, in the next few years, sectors like roads & highways, power, mining, airports, ports, defence, and other infrastructure-related sectors are likely to draw increased investments, in addition to the sectors mentioned above.
In the 12th Five year plan, India will need US$ 1 trillion to fund its infrastructure expansion. In FY 15 alone the FDI and FII inflow is expected to cross a record US$ 60 billion.
Therefore, it is very essential for Haryana to ensure that it has all the necessary policies and infrastructure in place, if it wants a higher share of FDI than what it has received so far.
Opportunity for Haryana
From the year 2000 to 2013, the state-wise break-up of FDI received is as follows:
Maharashtra, incl Dadra Nagar Haveli, Daman & Diu, received US$ 62,144 million (33% share), Delhi & NCR US$ 36,207 million (19% share), Karnataka US$ 10,561 million (6% share), Tamil Nadu & Puducherry US$ 10,449 million (6% share), Gujarat US$ 8,612 million (5% share), Andhra Pradesh US$ 7,846 million (4% share), West Bengal US$ 2,236 million (1% share), Chandigarh incl Haryana, Punjab & Himachal Pradesh US$ 1,188 million (1% share).
From the above, it is amply clear that Haryana is getting a very small share of the FDI. If Delhi & NCR can get US$ 36,207, there is no reason why Haryana, with its close proximity to Delhi, should not attract a much higher percentage of investment.
This year alone, the total FDI and FII will be well over US$ 60 billion, therefore it is imperative for Haryana to quickly re-focus all its energy and attention to attracting the FDI. Unfortunately, the Hooda government is yet to wake up to the opportunity, as it has its hands full with all the scams it has been involved with.
What can Haryana do to attract FDI?
Firstly, Haryana must ensure a lower tax regime as compared to other states. It must identify other innovative ways of direct and indirect tax collection, to make up the shortfall. Besides, with higher investment, the revenue will increase proportionately; therefore the state government must re-look at lowering taxes. Haryana must support implementation of GST at the central level.
Haryana has to ensure that land acquisition is transparent, corruption-free and fair. For infrastructure, the state will have to directly acquire or assist the investor in facilitating smooth acquisition of land. The government must ensure that all compensation to the seller is made on time, along with ensuring all relocation and rehabilitation of sellers is done to their satisfaction. This is absolutely essential if Haryana wants to attract FDI to the state.
The state must immediately re-look at the education system and introduce English speaking at the school level. Besides this, it must upgrade the technical training and education facilities for the youth. In addition, the state must offer subsidised land and give tax incentives for the private sector to invest in higher education and training.
Lastly, the state has to step up investment in infrastructure like power, roads, rail, inland ports, logistic parks, industrial parks, integrated housing colonies, etc. These can be through PPP mode provided the government offers the right incentives to the investors. With these measures in place, there is no reason why Haryana cannot attract a higher share of FDI.
FDI benefits to Haryana
The immediate impact of FDI is the creation of new job opportunities in the state. If the state can provide good quality skilled manpower at all levels, the per capita income in the state can rise significantly, thereby improving the quality of life for its citizens.
FDI will indirectly catalyse further development of infrastructure in the state. With more revenues coming in, the state will be able to allocate more resources for infrastructure development, which in turn will attract further investment.
FDI will also bring in new exposure to the latest technologies and processes, both in the manufacturing and services sector. This will help upgrade the skill level of the local people, as also, expose them to the latest developments and processes.
New hope for Haryana
As you can see from the above, the last 10 years of Hooda government has done little to bring any kind of FDI investment into the state and therefore, Haryana could not develop at the pace it should have.
With the new BJP government at the helm, India has renewed hope for rapid development. The BJP has brought in a Nayi Soch at the central level. It is now time for the BJP to do the same in Haryana. The people are ready to join hands to build a Naya Haryana. It is time for a change in government.