● Introduction about FDI:
Foreign Direct Investment is a pretty self-explanatory term. When an investor belonging to a foreign country invests in a business which is situated in another country, it is known as foreign direct investment. This investor can either be a firm, an individual or a company. This can be achieved if one acquires assets of the business or by establishing business operations so as to obtain a controlling interest in the business that has been set up in the foreign country. Mainly, there are three types of foreign direct investments including Horizontal FDI, Vertical FDI, and Conglomerate FDI.
● FDI in India:
Foreign Direct Investment has proven to be a very important medium to boost the economy lately. For India as well, FDI has proven to be one of the most powerful tools when it comes to boosting the foreign investment. In addition to this, it has also reduced the existing gaps between the domestic savings and the requirements as far as investments are concerned. However, this was not always the case. FDI India became considerably easier after the economic reforms of 1991.
● Routes undertaken for Foreign Direct Investment:
There are two routes that can be used for FDI including automatic route and government route:
1. Automatic Route
Automatic route is the one in which no private foreign investor is required to give any approval or authority. Any individual can invest in any company they wish for without obtaining any approval around the same.
2. Government Route
As part of this route, no investment is possible without obtaining approval from the government of India first.
So far, no uniform rate has been observed in India for the FDI in India. On one and, there are industries which allow a 100% FDI meaning that their entire revenue can be by means of foreign direct investment while on the other hand, there are some industries that have been prohibited from using either of the two routes. These industries include Nidhi Company, Lotteries, Gambling or any other betting business, investing in chit funds, Cigars or any product related to the tobacco industry, housing & real estate industry, trading in TDRs, and atomic energy generation.
● Indian Market Size for Foreign Direct Investment
From reports received from the Department of Promotion of Industry and Internal Trade, the FDI equity inflow in India has been recorded as US $44.37 Billion meaning that the constant effort that the government has been putting in relaxing the guidelines pertaining to the foreign direct investments has paid off well. From the data that has been obtained around the 2018-2019 has clearly shown that the services sector has been able to successfully attract the highest FDI with the equity flow of US $9.16 Billion with computer hardware, software and telecommunications right behind.
India has witnessed the highest foreign direct investment flow in 2018-2019 followed by Singapore, Mauritius, Netherlands, Japan, and USA. India has been working hard to increase its revenue and to achieve success as far as the sectors affiliated with foreign direct investment are concerned.
● Some classic Foreign Direct investment examples
There are numerous sectors in the economy wherein the concept of foreign direct investment can be deployed. In order to help you understand this concept better, we have jotted down some classic examples which will definitely help you obtain a granular knowledge of the subject. These examples include:
1. Services – FDI in this case would be when an American bank decides to open its customer service centre in order to be able to help its American customers.
2. Research and Development – Another famous example is in the Research & Development field as part of which a Japanese information technology company wishes to open a research and development centre in India.
As can be seen above, FDI is one of the biggest boons which can help improve the financial status of India and with the widespread knowledge and awareness that people all over the world, there will be a time when Foreign Direct Investment will be the heart and soul of the company. All we need to do is ensure that in addition to all the advanced technologies that are being used these days, the appropriate know-how and skills are employed for the same.