Question

Liberalization is not the sole reason to attract FDI. Do you agree? Why or why not?

Answer 1

Answer:

Foreign Direct Investment (FDI) in India is subject to certain Rules and Regulations and is subject to predefined limits ('Limits') in various sectors which range from 20% to 100%. There are also some sectors in which FDI is prohibited. The FDI Limits are reviewed by the Government from time to time and as and when the need is felt and FDI is allowed in new sectors where the limits of investment in the existing sectors are modified accordingly. In order to revise the FDI Limits to attract more foreign investment in India, the Union Government constituted a committee named, Arvind Mayaram Committee headed by the Economic Affairs Secretary. On Tuesday, 16th July, 2013, the Government approved the recommendations given by the Arvind Mayaram Committee to increase FDI limits in 12 sectors out of the proposed 20 sectors, including crucial ones such as defense and telecom.

Some of the important changes made in the Existing FDI Limits are provided below:

 FDI Limit in Telecom Sector is increased from 74 per cent to 100 percent, out of which up to 49 per cent will be allowed under automatic route and the remaining through Foreign Investment Promotion Board (FIPB) approval. A similar dispensation would be allowed for asset reconstruction companies and tea plantations.

 FDI in 4 sectors i.e. gas refineries, commodity exchanges, power trading and stock exchanges have been allowed via the automatic route. In case of PSU oil refineries, commodity exchanges, power exchanges, stock exchanges and clearing corporations, FDI will be allowed up to 49 per cent under automatic route as against current routing of the investment through FIPB.

 FDI in single brand retail is to be allowed up to 49 percent under the automatic route and beyond that shall be through FIPB.

 In credit information firms, 74 per cent FDI under automatic route will be allowed.

 In respect of courier services, FDI of up to 100 per cent will be allowed under automatic route. Earlier, similar amount of investment was allowed through FIPB route.

 FDI cap in defense sector remained unchanged at 26%, however higher limits of foreign investment in state-of-the-art manufacturing would be considered by the Cabinet Committee on Security (CCS). Technically, the decision leaves it open for CCS to even allow 100% foreign investment in what the defence ministry will define as "state-of-the-art" segments with safeguards built in to ensure that the technology and equipment are not shared with other countries.

Answer 2

Answer:

1. The process or method of liberalization is the removal of state regulation of economic activity. It removes government involvement and gives corporate firms more autonomy in decision-making.
2. A process of liberalization was started to abolish these restrictions and open up various economic sectors. Although some liberalisation suggestions were introduced in the 1980s in the fields of fiscal policy, foreign investment, technical advancement, and export-import policy, the industrial licensing and economic reform policies introduced in 1991 were more comprehensive.
3. A few noteworthy areas acquired notoriety in and after 1991, including the financial sector, industrial sector, foreign currency markets, tax reforms, and the investment and trade sectors. The Indian economy has seen a significant transformation since 1991 when the New Economic Strategy was adopted.
4. The government has regulated private sector organizations to conduct business transactions with fewer constraints since the advent of liberalization. The liberalization of trade has allowed foreign businesses and investments into emerging nations. Investors formerly had to struggle to enter nations with numerous hurdles. These obstacles included tax legislation, prohibitions on foreign investment, accounting rules, and legal concerns.
5. All these barriers were removed by economic liberalization, which also removed some limitations on the private sector's ability to direct the economy. In India, foreign direct investment (FDI) is subject to several rules and regulations as well as predetermined restrictions (together referred to as "Limits") that can range from 20% to 100% in certain sectors. Furthermore, The Government periodically reviews the FDI Limits as and when the need arises, and FDI is permitted in new sectors when the Investment Limits in Existing Sectors are Modified Accordingly. The Arvind Mayaram Committee, led by the Economic Affairs Secretary, was established by the Union Government to review the FDI Limits to increase foreign investment in India.
6. The Government adopted the Arvind Mayaram Committee's proposals to raise FDI limits in 12 of the proposed 20 sectors, including sectors as important as military and telecommunications. Gas refineries, commodities exchanges, power markets, and stock exchanges are the four industries where FDI has been automatically permitted.
7. As opposed to the current investment routing through the FIPB, FDI will be authorized up to 49% in PSU oil refineries, commodity exchanges, power exchanges, stock exchanges, and clearing firms.

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