Openness to Foreign Investments in India

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The article presents an overview of the Openness to Foreign Investments in India. The post-independence era of India had a negative notion about Foreign Investments as per the economic policy till the year 1991 when reforms were taken up foreign investments were allowed in the India industries.

An Overview of Openness to Foreign Investments in India-

In 1991, India opened its market for the foreign investors for the first time as a consequence of the huge economic crisis post-independence.
The foreign investors were only allowed to invest in Indian market and set up units in India only if they had a better technology which was not available in India.

Policy for Foreign Investments in India-

The industrial policy which was implemented in the year 1991 was the simplified form of the previous one. The newly revised industrial policy was more liberal, transparent, and convenient in compare to the earlier ones. As per the new industrial policy, foreign investments were highly necessary for India to become equally competent to the global level. FDI policy also allows FDI inflows under automatic route up to 51 percent.

Previous Policies for Foreign Investments in India-

Before the year 1991, the FDI Inflows, under automatic route, was limited to only 40 percent and the foreign investors had to follow a series of unnecessary norms which in some cases also forced them to abandon their projects. There were a lot of hassles involved in the execution of projects in Indian market before which, were a big impediment for the economic development of the country. The Government of India had turned down requests for foreign shares of more than 52 percent. In 1991 the Government of India opened the Indian market to the foreign investors by changing the investment policies in certain sub-sections of the Indian economy. This resolved the crisis after 1991 slowly, when the Non-resident Indians (NRI's) and Overseas Corporate Bodies (firms with NRI majority ownership) were allowed to hold 100 percent ownership in all the industrial sectors in India except those reserved for the public sector.

Industries Reserved for Public Sector and Do not Receive FDI -

  • Atomic energy
  • Railway transport
  • Ammunition and defense equipment
  • Mineral oils
  • Arms
  • Minerals used in atomic energy
  • Improved conditions
In the recent period, the foreign investment procedures, especially investments by NRIs and OCBs, are allowed to carry out on a repatriation basis in the manufacturing sector, which means the payments can be done outside India under the regulations of RBI.

Last Updated on 05/07/2011