FDI-Foreign direct investment

Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin. Classification

Inward-investment of foreign capital occurs in local resources.

Outward-In this case it is the local capital, which is being invested in some foreign resource.

Modes of FDI
Foreign Direct Investment (FDI) is permited as under the following forms of investments. Through financial collaborations. Through joint ventures and technical collaborations. Through capital markets via Euro issues. Through private placements or preferential allotments. Forbidden Territories: FDI is not permitted in the following industrial sectors: Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.

Other modes of FDI

Global DepositoryReceipts(GDR)/AmericanDepositReceipts (ADR) ForeignCurrencyConvertibleBonds(FCCB)

Through preference shares

Benefits of Foreign Direct Investment

It helps in the economic development of the particular country where the investment is being made. Foreign direct investment also permits the transfer of technologies. The countries that get foreign direct investment from another country can also develop the human capital resources by getting their employees to receive training on the operations of a particular business. Helps in the creation of new jobs in a particular country. Assists in increasing the income that is generated through revenues realized through taxation It becomes easier for the business entities to borrow finance at lesser rates of interest.

Current scenario
In 2007-08, India's FDI touched US$ 25 billion, up 56 per cent against US$ 15.7 billion in 2006-07, and the country's foreign exchange reserves had crossed US$ 341 billion as on May 21, 2008. A large portion of the FDI has been flowing into the skillintensive and high value-added services industries, particularly financial services and information technology. India, in fact, dominates the global service industry in terms of attracting FDI with its unassailable mix of low costs, excellent technical and language skills, mature vendors and liberal supportive government policies. Global investors are also evincing interest in other sectors like telecommunication, energy, construction, automobiles, electrical equipment apart from others.

International retail sector- Wal Mart, Marks & Spencers, Roseby, etc, have lined up investments to the tune of US$ 10 billion for the retail industry. Panasonic - US$ 200 million investment in India Japanese engineering major, Toshiba plans to invest around US$ 232.91 million Coca Cola India plans to invest US$ 250 million

Government Initiatives
The government would soon remove the compulsory disinvestment clause on overseas companies in major sectors like food processing and chemicals, a move aimed at simplifying foreign direct investment (FDI) rules . The government may allow 49 per cent FDI in segments such as gems & jewellery and apparel Establishment of the Indian Investment Commission to act as a onestop shop between the investor and the bureaucracy. Progressively raising the FDI cap in other sectors like telecom, aviation, banking, petroleum and media sectors among others. Removal of the investment cap in the small scale industries (SSI) sector.