Foreign Direct Investment

India is a vast country in the South of Asia and in geographical terms boasts the seventh largest country in the world.

It is also the second most populous country in the world with a population of over one billion people.

According to the last census in 2001, India’s multiethnic population was recorded to be about 1.029 billion and the figure is expected to have risen to at least 1.147 billion people as of 2008.

The Indian economy is estimated to be the 12th biggest in the world in terms of market exchange rates as well as the 4th largest in terms of purchasing power.

This has resulted from a number of careful reforms in its economic policies that were initiated in 1991 though the progress of the economy in India is still much hampered by high levels of poverty and malnutrition as well as illiteracy.

Recognizing the increasing globalization of the world’s economic system, the government of India, through its Ministry of Commerce and Industry embarked on heavy reforms in the country’s financial and economic policies with a keen eye for foreign direct investments.

These were termed as first generation reforms and in so doing, the government intended to encourage foreign direct investment in its entire economy as a weapon for faster growth and integration into the world economy.

Foreign Direct Investment (FDI) actually refers to the direct investments by a foreign company that is incorporated in a country, in productive assets and not investment in shares of local companies by foreign entities as is widely believed.

In May 2003, India’s Department of Industrial Policy and Promotion which is under the same ministry published a manual on FDI policy and procedures in an effort to provide timely and comprehensive information to prospective foreign investors on the regulations governing the sector while also advising on investment opportunities available as part of its aggressive approach towards encouraging injection of foreign capital in its economy.

In its policies, the government sought to abolish industrial licensing requirements and investment restrictions as well as other incentive measures in a bold move to encourage FDI.

The FDI policy manual indicated that it was in the process of initiating what it called second generation reforms aimed at further acceleration of the economy while launching serious efforts to attract even more FDI.

Boasting a huge population, rapid advancements in information technology and significant political reforms, the country’s potential for attracting FDI remains very high.