2. What is FDI?
FDI is when an investor from another country (foreign country) makes an
investment in a business situated in the country. Now such an investor can
be an individual, firm, company, et
IN OTHER WORD, Foreign direct investment (FDI) is an investment made by a
company or individual in one country, in the form of either establishing
business operations or acquiring business assets in the other country, such
as ownership or controlling interest in a foreign company.
This means they aren’t just bringing money with them, but also knowledge,
skills and technology.
FDI is when an organization or an individual owns a participation in the
shares of a minimum of ten percent of a foreign company.
3. Current Facts Related FDI in
FDI is an important monetary source for India's economic development.
started in India in the wake of the 1991 crisis and since then, FDI has steadily
increased in the country. India, today is a part of top 100-club on Ease of Doing
Business (EoDB- Index) and globally ranks number 1 in the greenfield FDI ranking.
Singapore was the largest source of FDI in India in the April-June 2019-20
period with $ 5.33 billion investments followed by FDI from Mauritius worth $
4.67 billion, the US worth $ 1.45 billion, the Netherlands worth $ 1.35 billion
and Japan worth $ 472 million
In India, foreign direct investment policy is regulated under the Foreign
Exchange Management Act, 2000 governed by the Reserve Bank of India.
4. Routes to get FDI in India
AUTOMATIC ROUTE: where no approval or authority is required by the
private foreign investor. He can invest in any company it wishes with no
need for government approval.
GOVT ROUTE: in this route, there is no investment without the prior approval
of the Government of India.
5. Percentage of FDI
Foreign Direct Investment in India does not have a uniform rate. Some
industries allow 100% FDI, i.e. the entire funds of the business can be
from foreign direct investment. The percentages vary from 26% to 49%
to 51%. There are a few industries where FDI is strictly prohibited
under any route.
6. Prohibited sector
There are a few industries where FDI is strictly prohibited under any route. These
Atomic Energy Generation
Any Gambling or Betting businesses
Lotteries (online, private, government, etc)
Investment in Chit Funds
Agricultural or Plantation Activities (although there are many exceptions like
horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc)
Housing and Real Estate (except townships, commercial projects, etc)
Trading in TDR’s
Cigars, Cigarettes, or any related tobacco industry
9. Some specific sectors are mentioned that have specific
condition for FDI
Specific Sectors Automatic Government
Broadcast content service(uplinking) 100% -
Broadcast content service --- 49%
Broadcast carriage service 100% ---
Defense upto49% Above 49%
Digital Media ---- Upto 26%
Infrustucture co. in the securities market 49% ---
Healthcare (brownfield) Upto 74% Above 74%
Mining ---- 100%
Insurance Upto 49% ---
Multi brand retail trading -- 51%
Pension 49% ----
Petrolium (refining by PSUs) 49% ---
Pharmaceuticals (Brownfield) Upto 74% Above 74%
10. Advantages of FDI
11. Disadvantages of FDI
cottage and small scale
Inflation in the
World Bank and lMF
13. •An inward investment consists of foreign entities investing in
local economies bringing in foreign capital.
•Inward investments overall improve local economies by
bringing wealth, job creation and infrastructure development.
•An outward direct investment (ODI) is a business strategy in
which a domestic firm expands its operations to a foreign
country. This can take form as a green field investment, a
merger/acquisition, or expansion of an existing foreign facility.
FDI- On The Basis of Direction
14. •A greenfield investment is a form of market entry commonly used when a
company wants to achieve the highest degree of control over foreign activities.
•According to the Bureau of Economic Analysis (BEA), a greenfield investment is a
project “where foreign investors establish a new business or expand an existing
business on U.S. soil.”
• Mergers and acquisitions (M&A) are defined as consolidation of companies.
Differentiating the two terms, Mergers is the combination of two companies
to form one, while Acquisitions is one company taken over by the other.
• Horizontal FDI occurs when the multinational undertakes the same
production activities in multiple countries
FDI- On The Basis of Target
•Vertical FDI takes place when the multinational fragments the
production process internationally, locating each stage of
production in the country where it can be done at the least cost.
15. •Investment which seeks to acquire factors of production that is more
efficient than obtainable in the home economy of the firm.
•Motivated by investor interest in accessing and exploiting natural
•Motivated by investor interest in serving domestic or regional markets.
•Investment which aims either penetrating new market or
•FDI that comes into a country seeking to benefit from factors that
enable it to compete in international markets.
FDI- On The Basis of Motive
•Motivated by investor interest in acquiring strategic assets
(brands, human capital, distribution networks, etc.) that will
enable a firm to compete in a given market. Takes place through
mergers and acquisitions.