India and the US have multi faceted relations in the field of politics, economics and commerce. India-US economic relations in the form of bilateral investments and trade constitute important elements in India-US bilateral relations particularly because India is now the second fastest growing economy in the world and USA is the world's largest economy.
Economic Reforms introduced since 1991 have radically changed the course of the Indian economy and has led to its gradual integration with the global economy. The effect of this reform process on trade and investment relation with US is profound. USA is the largest investing country in India in terms of FDI approvals, actual inflows, and portfolio investment. US investments cover almost every sector in India, which is open for private participants. India's investments in USA are picking up. USA is also India's largest trading partner. By 2003, India became the 24th largest export destination for the US. In terms of exports to the US, India now ranks eighteenth largest country.
US investment in India
With regards to FDI U.S. is one of the largest foreign direct investors in India. The stock of actual FDI Inflow increased from U.S. $11.3 million in 1991 to US $4132.8 million as on August 2004 recording an increase at a compound rate of 57.5 percent per annum. The FDI inflows from the US constitute about 11 percent of the total actual FDI inflows into India.
Top sectors attracting FDI from USA are: Fuels (Power & Oil Ref.) (35.93%), Telecommunications (radio paging, cellular mobile & basic telephone services (10.56%) Electrical Equipment (including Computer Software & Electronics) (9.50%), Food Processing Industries (Food products & marine products) (9.43%), and Service Sector (Fin. & Non-Fin. Services) (8.28%).
India's investment in US
India's direct investment abroad was initiated in 1992. Streamlining of the procedures and substantial liberalization has been done since 1995. As of now, Indian corporate/Registered partnership firms are allowed to invest abroad upto 100% of their net worth and are permitted to make overseas investments in business activity.
The overall annual ceiling on overseas investment and also the requirement of prior approval of RBI for diversification of activity and for transfer by way of sales of shares have been done away with. The need for opening up the regime of Indian investments overseas has been the need to provide Indian industry access to new markets and technologies with a view to increasing their competitiveness globally
Since 1996 and upto September 2004, the total approved Indian investment abroad amounts to US $ 11083.11 mln, of which 60.9% has been the actual outflow. US share ($ 2080.367 mln.) constitutes 18.77% of the total approval. Since 1996, USA attracted highest Indian direct investments (US$ 2080.367 mn) followed by Russia (US$ 1751.39 mn), Mauritius (US$ 948.864 mn) and Sudan (US$ 912.03 mn). India's outgoing investments has been largest in the field of manufacturing (54.8%) followed by non-financial services including software development (35.4%).
In the current financial year 2004-05(April- August, 2004) actual outflows from India on account of overseas investment was US$ 575.14 million as compared to US$ 384.49 million in the corresponding period of last year. In the current year, USA attracted highest Indian direct investments (US$ 125.4 mn) followed by Australia (US$ 116.33 mn), Kazakhstan (US$ 39.05 mn) and Hong Kong (US$ 28.49 mn). India's outgoing investments was largest in the field of manufacturing at US$ 279.07 million followed by non-financial services (including software development) at US$ 75.27 million, Others at US$ 61.27 million and Trading Sector at US$ 30.3 million. The returns on account of repatriation of dividend, royalty, consultancy fee etc. from overseas JV/WOS during April-August, 2004 amounted to US$ 40.87 million.
The US investor community is increasingly sharing confidence in the future of the Indian economy presently. The growing synergy between the two countries in the technology sectors and mutually shared respect for democracy, rule of law and well established business practices have considered the two countries natural business partners from time to time.