FDI

INTRODUCTION:-

• A foreign direct investment (FDI) is an investment made by a firm or

individual in one country into business interests located in another country.
Generally, FDI takes place when an investor establishes foreign business
operations or acquires foreign business assets in a foreign company.
However, FDIs are distinguished from portfolio investments in which an
investor merely purchases equities of foreign-based companies.
TYPES OF FDI:-

• Horizontal: a business expands its domestic operations to

a foreign country. In this case, the business conducts the
same activities but in a foreign country. For example,
McDonald’s opening restaurants in Japan would be
considered horizontal FDI.
• Vertical: a business expands into a foreign country by
moving to a different level of the supply chain. In other
words, a firm conducts different activities abroad but these
activities are still related to the main business. Using the
same example, McDonald’s could purchase a large-scale
farm in Canada to produce meat for their restaurants.
FDI ROUTES IN INDIA:-

• Automatic Route
FDI under this route does not require prior approval either by
the government of India or by the Reserve Bank of India;
The investors are only required to notify the concerned
regional office of RBI within 30 days of receipt of inward
remittance and file required documents with that office
within 30 days of issue of shares to the foreign investor; and
Investment is permitted up to prescribed sectoral limit.
• Government approval or FIPB route
Prior approval by government is needed via this route. The application
needs to be made through Foreign Investment Facilitation Portal, which will
facilitate single window clearance of FDI application under Approval Route.
The application will be forwarded to the respective ministries which will act
on the application as per the standard operating procedure.
All activities / sectors that are not covered under automatic route or where
the proposed FDI exceeds the specific sectoral caps require prior
government approval and are considered by Foreign Investment Promotion
Board.
Areas / sectors / activities hitherto not open to FDI / NRI investment will
continue to be so unless otherwise notified by the government.
FDI PERCENTAGE IN SECTOR:-

• Percentage of FDI in India in different sectors.

• Agriculture-100%
• Banking-74%
• Retailers-51%
• Defence - 49%
ADVANTAGES OF FDI:-

• 1. Increase employment-Increased FDI boosts the manufacturing as well

as the services sector. This in turn creates jobs, and helps reduce
unemployment among the educated youth - as well as skilled and
unskilled labour - in the country.
• 2. Economic growth-Increased employment translates to increased
incomes, and equips the population with enhanced buying power. This
boosts the economy of the country.
• 3. Increase in exports-Not all goods produced through FDI are meant for
domestic consumption. Many of these products have global markets.
The creation of 100% Export Oriented Units and Economic Zones have
further assisted FDI investors in boosting their exports from other
countries.
DISADVANTAGES OF FDI:-

• 1. Risk from Political Changes.

Because political issues in other countries can instantly change,
foreign direct investment is very risky. Plus, most of the risk factors
that you are going to experience are extremely high.
• 2. Negative Influence on Exchange Rates.
Foreign direct investments can occasionally affect exchange rates
to the advantage of one country and the detriment of another.
• 3. Higher Costs.
If you invest in some foreign countries, you might notice that it is
more expensive than when you export goods. So, it is very
imperative to prepare sufficient money to set up your operations.