Since 1991, when the Economy opened to Trade and Foreign Investment, there has been a steady increase in FDI and portfolio investments into India. In fact, the Foreign Exchange Reserves of near –US$400 Billion is proof of that though there has been significant capital outflow in 2018 because of the US Economy upswing.
FDI is particularly welcome because it creates assets in India as well as jobs. Usually, its long term in nature, and therefore, stable and predictable. Portfolio investments, of course, help to create jobs but are more volatile in terms of inflows and outflows.
India’s policy towards Foreign Investment has been steady liberalized in terms of Foreign Equity holings. By and Large, there are only a few industries, like Insurance, where the Foreign Equity limit is below 50%.
As a result, even Indian banks now have foreign equity through Institutional Investors of over 50%. Questions have been asked whether these continue to be “Indian” banks!
RBI is also prescribing the reduction of Indian promoter equity in their banks which means that foreign investors would step in to pick up shares in such banks. There just is not sufficient domestic capital available so the dependence on foreign equity is unavoidable.
The question for the RBI is simply this: what measures, if any, are being taken to ensure that Indian banks and industry remain “Indian” in terms of ownership?
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