As per the 'World Investment Prospects Survey 2009-2011' released by the United Nations Conference on Trade and Development (UNCTAD) in 2009, India ranked third in global FDI inflows. UNCTAD is confident that India will remain among the top five attractive destinations for foreign investors during the next two years.

On its part, the Indian Government has taken several measures during the year to keep up the foreign investors interest in India.

In December 2009, the Union Ministry of Commerce and Industry released the first draft consolidation of all the aspects of FDI policy and framework. The proposed draft consolidation is expected to ensure the availability of all information on FDI policy at one place and is expected to lead to simplification of the policy and greater clarity of understanding of foreign investment rules among foreign investors and sectoral regulators. The government has invited comments on the draft policy from interested parties by 31 January 2010. Thereafter a consolidated FDI policy is expected to be released by the government.

Besides, the Union Government has also formed a non-profit company, Invest India, in collaboration with Federation of Indian Chambers of Commerce and Industry (FICCI) and state governments to assist foreign investors and make their investment process hassle free.

During January - October 2009, the FDI inflows registered a fall of -9.27 per cent as compared with such flows in the corresponding period of 2008. As against the FDI inflows of $30.589 billion (approx Rs 127,815 crore), the country received only $23.821 billion (approx Rs 115,971 crore) during the January - October period.

The monthly trends in the FDI inflows during the first 11 months of 2009 were erratic. After registering a whopping 92 per cent growth in January 2009, such inflows declined sharply between February and May 2009. Between June and August the flows recorded positive growth on a Y-o-Y basis. Further, after dipping in September they once again gained momentum in October and November 2009.

As per the latest data released by the Department of Industrial Policy and Promotion (DIPP), the FDI inflows stood at $2.332 billion (approx Rs 10,895 crore) in October 2009, up from $1.497 billion (approx Rs 6,961 crore) in October 2008. The inflows further surged by 60 per cent in November 2009 to $1.74 billion (Rs 8,091 crore) as compared to $1.08 billion (approx Rs 5,022 crore) in November 2008.

In 2009, Mauritius remained the premier FDI source country. It accounted for 44 per cent of the total FDI received during April 2000 to October 2009. The Government of India's double taxation avoidance treaty with Mauritius has made increased number of foreign investors to take the Mauritius route to invest in India. The other major sources of FDI were Singapore, the USA, the UK and Netherlands.

The first 10 months of 2009 saw reductions in FDI inflows across major sectors. Among the sectors, the Services sector attracted the largest share of foreign capital i.e. 22 per cent followed by Computer Software and Hardware (9 per cent), Telecommunications (9 per cent), Housing and Real Estate (7 per cent).

Infrastructures including roadways, airports and ports sectors are expected to receive high FDI in the next couple of years.

Other Developments

In January 2009, the government allowed 100 per cent FDI in printing the facsimile editions of foreign newspapers thus allowing newspapers to publish their foreign editions in India. Additionally, this clearance will also make it possible for media firms in India to publish local editions of international magazines such as Fortune and Forbes.

On the realty sector side, DIPP set up a monitoring cell to investigate the end-use of foreign funds raised by realty firms. The cell will monitor the flow of FDI and ascertain whether companies diverted the FDI money to areas where FDI is banned like buying agricultural land.

Under current regulations, FDI is banned in agriculture and agriculture-related activities. However, 100 per cent FDI is allowed for integrated townships and housing development projects. Existing regulations also do not provide for the purchase or sale of undeveloped land for which FDI approval has been granted. Such land must be retained by the developer. DIPP will now ask realty firms to submit quarterly reports on the end-use of foreign funds to ensure that the funds are not being routed to projects other than FDI-compliant ones.

FDI clearances

Between January and December 2009, the Union Finance Ministry on recommendations of the FIPB accorded its approval to 311 FDI proposals amounting to Rs 15,819 crore as compared to 361 proposals worth Rs 26,253 crore in the corresponding period of 2008.

In December 2009, the Union Government on recommendations of the FIPB, ratified 26 FDI proposals worth Rs 5,075 crore, in two tranches. First set of 17 proposals worth Rs 4,551 crore was approved on 1 December 2009. Largest among these proposals was of Sistema Shyam Teleservices' Rs 3,051 crore plan for induction of FDI in the company under Unified Access Service Licence.

Other proposals cleared include Delhi based Scorpios Beverages' proposal that will contribute FDI of Rs 533 crore, Telecom Investments India's plan for Rs 380 crore and AG Mercantile's Rs 330 crore proposal.

For the second time during the month, the government cleared nine FDI proposals worth Rs 524 crore, on 30 December 2009.

Some of the major proposals that were given a go ahead included Mitsui & Co's Rs 326 crore proposal to set up a wholly owned subsidiary and a JV company and Internet Global Services' Rs 100 crore proposal to invest in non-convertible redeemable preference shares capital out of internally accrued funds.

In all, 10 proposals have been deferred and nine have been rejected by the FIPB. The proposals deferred included Verizon Communication India's proposal for transfer of equity of shares from nonresident shareholders to non-resident group in telecom sector and Telstra Telecommunications' plan to issue fresh equity shares for increasing FDI from 49 to 74 per cent.

Verint System India, Southern CNG Automobiles, Asha Micro Credit, and Global Holding Corporation's proposals were some of the proposals that have been rejected.