FDI involves controlling ownership of a business in one country by an entity based in another. After liberalizing its economy in 1991, India has pursued policies to attract more foreign direct investment. There are two main ways - acquisition of existing foreign businesses, and establishing new wholly-owned ventures from scratch. FDI is classified under automatic or government approval routes, and can be horizontal, vertical, backward, or forward depending on the business activities involved. Major investors in India come from Singapore, Mauritius, Netherlands, USA, and Germany.
3. INTRODUCTION
• Foreign Direct Investment (FDI) is an investment in the form
of a controlling ownership in a business in one country by an
entity based in another country.
• An investment made in foreign land by any individuals or a
company of another country.
• A part of a globalization.
• Sectors : Agriculture, Infrastructure, Health, Transport, etc.
4. HISTORY
• (1947-1990) – “License Raj” and Fiscal deficit.
• 1991 - India had to pledge 20 tons of gold to Union Bank of
Switzerland and 47 tons to Bank of England as part of a bailout deal
with the International Monetary Fund (IMF).
• Started from 1991, under P.M. Manmohan Singh directions.
• 1991 – LPG (Liberalisation, Privatisation and Globalisation).
• The new neo-liberal policies included opening for international
trade and investment, deregulation, initiation of privatization, tax
reforms, and inflation-controlling measures.
5. WAYS
1. Acquisition : Investment in existing business outside the
country.
For e.g.: MARUTI SUZUKI (JAPAN-INDIA),
TATA - JAGUAR LAND ROVER, etc.
2. Greenfield : Investment in a fresh new wholly owned
venture, where a parent company builds its operations in a
foreign country from the ground level.
For e.g.: Cocacola in India,
McDonalds, etc.
6. Norms
• Automatic Route:
By this route FDI is allowed without prior approval by Government
or Reserve Bank of India. Not necessary to scrutinize the process in
detail paperwork. Only general paperwork works.
• Government Approval
Prior approval by government is needed via this route. Foreign
Investment Promotion Board is the responsible agency to oversee
this route.
• Prohibited FDI - Manufacture of cigars , cheroots, cigarillos and cigarettes ,
liqour, Atomic energy and Defense, etc.
7. TYPES
• Horizontal − In case of horizontal FDI, the company does all the
same activities abroad as at home. Undertake same kind of
business. Expansion of same thing.
• Vertical − In vertical assignments, different types of activities are
carried out abroad. To control or manage stages of production
process.
• Backward - To manage the raw material or the resources of initial
production. E.g: Tyres for car in other country, cotton for shirts, etc.
• Forward - done in pursuit of coming closer to the market for post
production process.
• Conglomerate − In this type of investment, the investment is made
to acquire an unrelated business abroad.