Context:
Finance Minister cited that Friend shoring of FDI is leading to a fragmentation in FDI flows across the globe.
About Friend-shoring:
- It is a strategy where a country sources the raw materials, components and even manufactured goods from countries that share its values.
- Other Name: Ally-shoring
- A group of countries with shared values to deploy policies encouraging companies to spread manufacturing within that group.
- Significance –
- Will prevent nations (like China and Russia) from unfairly leveraging their market position.
- Diversifying global supply chains.
- Related Terms –
- Offshoring: Companies cutting costs by shifting manufacturing to countries with cheap labour.
- Reshoring: Countries bringing back their production to home country.
About Foreign Direct Investments (FDI):
- It is an investment made by a firm or individual in one country into business interests located in another country.
- Components –
- Equity capital: Purchase of shares of an enterprise in a country other than its own.
- Reinvested earnings: Share of earnings not distributed as dividends or not remitted to the direct investor.
- Intra-company loans:Short or long term borrowing and lending of funds between direct and affiliate enterprises.
- Routes of FDI –
- Automatic Route: FDI allowed without the prior approval of the government or the RBI
- Government Route: Foreign entity has to take the approval of the government.
- FDI in India –
- 100% FDIis allowed in non-critical sectors through the automatic route
- Prior security clearance from MHA is required sectors such as defence, media, telecommunication, satellites, private security agencies, civil aviation and mining, besides any investment from Pakistan and Bangladesh.
- FDI prohibition in 9 sectors: Lottery, Gambling, Chit funds, Nidhi Companies, Real estate, some areas of agriculture, Multi-brand retail trading, Sectors not open to private sectors, Manufacturing of tobacco etc.
- Trends:
- Declining Growth rate of FDI
- Increasing FDI outflows
- Tax havens like Mauritius and Cayman Islands continue top FDI sources
- 62% of total FDI inflow in 5 sectors: Computer Hardware & Software, Service sector, Automobile, Trading, Construction
- 78% of total inbound FDI limited to 3 States: Karnataka, Maharashtra, Delhi
- Major FDI sources of India: Singapore (37%), Mauritius (12.1%), UAE (11%), USA (10%)
Source: The Hindu
