The FDI policy is being continuously revised to promote both the Greenfield and Brownfield investments but they are treated differently. Discuss along with the recent steps taken by government to boost foreign investment in India.
• Introduce with Greenfield and Brownfield investments
• Briefly discuss how the policy differs slightly
• Then discuss steps taken to promote foreign investment
• Conclude appropriately
Model Answer :
Greenfield investment is the investment in new plants or investment in which a parent company or government begins a new venture by constructing new facilities, while Brownfield investment is the investment in an existing plant. In brownfield investment, the entity either purchases an existing facility to begin new production or merges with other entities.
The FDI policy in our country is usually sectoral in terms of permitting Greenfield and Brownfiled investment. Usually FDI policy for new investments in Greenfield projects is more liberal than that for the Brownfield investments as they often lead to acquisition of domestic companies by MNCs. For example, while FDI for green-field projects in Pharmaceutical Sector is under automatic route, brown-field projects with investment beyond 74% are placed under government route.
Government has taken following measures to boost foreign investment in India:
The Government has put in place an investor-friendly policy, wherein except for a small negative list, most sectors are open for 100% FDI under the Automatic route.
100% FDI under automatic route has been permitted in Brownfield Airport projects.
Foreign investment in financial services activities regulated by financial sector regulators such as RBI, SEBI, IRDA etc. will be 100% under the automatic route.
Regional Air Transport Service has been opened for foreign investment up to 100%, with 49% under automatic route.
FDI Policy on Insurance and Pension sector has been reviewed to permit foreign investment up to 49% under the automatic route.
100% FDI under automatic route is permitted in the marketplace model of e-commerce.
Foreign investment up to 49% in defence sector has been permitted under automatic route along with specified conditions.
Full fungibility of foreign investment has been introduced in Banking-Private sector.
Measures are also being taken for the rationalization of the regulatory environment through business process reengineering and use of information technology.
These measures are expected to increase foreign investment, which complements and supplements domestic investment. Domestic companies will be benefited through FDI, by way of enhanced access to supplementary capital and state-of-art-technologies; exposure to global managerial practices and opportunities of integration into global markets resulting into accelerated domestic growth of the country.