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- Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.
- There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative)
- FDI is a measure of ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as the measure of growing economic globalization.
- A foreign direct investor may be classified in any sector of the economy and could be any one of the following:
- an individual;
- a public company or private company;
- a group of related enterprises;
- a government body;
- any combination of the above.
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- Foreign direct investment incentives may take the following forms:
- low corporate tax and income tax rates, tax holidays and other types of tax concessions
- preferential tariffs
- special economic zones and Export Processing Zones
- investment financial subsidies
- soft loan or loan guarantees
- free land or land subsidies
- job training & employment subsidies
- infrastructure subsidies
- R&D support
- derogation from regulations (usually for very large projects)
- The United States is the world’s largest recipient of FDI. More than $228 billion in FDI flowed into the United States in 2010, with Europe contributing 75% of the total. Benefits of FDI in America: In the last 6 years, over 4000 new projects and 630,000 new jobs have been created by foreign companies, resulting in close to $314 billion in investment. US affiliates of foreign companies have a history of paying higher wages than US corporations.
- FDI in INDIA:
- Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010-2012.
- As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware.
- Mauritius, Singapore, the US and the UK were among the leading sources of FDI.
- FDI in 2010 was $24.2 billion
- An Indian company may receive Foreign Direct Investment under the two routes as given under :
i. Automatic Route
FDI up to 100% is allowed under the automatic route in all activities/sectors except where the provisions of the consolidated FDI Policy are attracted. FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India.
ii. Government Route
FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB).
Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and for the issue of shares to the non-resident investors. - FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:
i) Retail Trading (except single brand product retailing)
ii) Atomic Energy
iii) Lottery Business
iv) Gambling and Betting
v) Business of Chit Fund
vi) Nidhi Company
vii) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities
viii) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges
ix) Trading in Transferable Development Rights (TDRs).
x ) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobacco substitutes.
