India’s Investment Environment

Economic reforms and liberalisation of foreign direct investment (FDI) policy has been a dynamic process in India that has led to the country having emerged as a global investment ‘hotspot’. Various obstacles to FDI approvals and implementation have been removed substantially at the Centre. But the procedures at the State level are still fairly cumbersome and time consuming which leads to delay in project implementation.

The reforms have created a conducive environment for FDI and market-oriented policies are boosting various economic activities. India welcomes FDI in virtually all sectors except lottery business, gambling and betting, retail trading (except Single Brand Product retailing) and atomic energy. In sectors like road and port infrastructure, mining of gold and minerals, and pharmaceuticals, foreign investors can own up to 100 percent equity without Government approval. The restrictions to FDI at the sectoral level are regarding investment caps and foreign ownerships. However, the Government is continuously eliminating FDI limits in various sectors to increase flows and stimulate transfer of technology.

The country is certainly an attractive destination for FDI especially given its huge consumer base but there are certain factors, which have prevented it from realising its true potential. More can be achieved through continued reforms that strengthen institutions, improve economic policies, ease administrative hurdles and create an environment favourable for private investment.

CUTS International has completed a study for Organisation for Economic Cooperation and Development (OECD) to analyse certain aspects of India’s investment environment; and has been periodically tracking developments that aim to achieve investment policy reforms. As a follow up, CUTS has been preparing monthly updates on FDI policy changes in India, which are available at the following links:

FDI Policy Updates