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Mine Fdi

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16 views7 pages

Mine Fdi

Uploaded by

glorinageorge16
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Foreign Direct Investment

• A FDI is an investment made by a firm or individual in one country into business


interests located in another country.
• Generally, FDI takes place when an investor establishes foreign business operations
or acquires foreign business assets in a foreign company
• Foreign direct investments are commonly made in open economies that offer a skilled
workforce and above-average growth prospects for the investor, as opposed to tightly
regulated economies.
• It frequently involves more than just a capital investment. It may include provisions of
management or technology as well.
• The key feature of foreign direct investment is that it establishes either effective
control of or at least substantial influence over the decision-making of a foreign
business.
• Automatic route: The non-resident or Indian company does not require prior nod of the RBI
or government of India for FDI.

• Govt route: The government's approval is mandatory.


• The company will have to file an application through Foreign Investment Facilitation Portal,
which facilitates single-window clearance.
• The application is then forwarded to the respective ministry, which will approve/reject the
application in consultation with the Department for Promotion of Industry and Internal Trade
(DPIIT), Ministry of Commerce.
• DPIIT will issue the Standard Operating Procedure (SOP) for processing of applications under
the existing FDI policy.
• According to an article published in Economic Times Updated: Dec 11, 2020, 02:16 PM IST
• The government notified changes in the Foreign Exchange Management Act permitting foreign
direct investment (FDI) in defence production upto 74% on the automatic route and beyond
that on the government route wherever it is likely to result in access to modern technology.

• According to an article published by NDTV Updated: May 24, 2021 4:40 pm IST
• India attracted highest ever total FDI inflow of $81.72 billion during the financial year 2020-21,
which is 10 per cent higher as compared to the corresponding fiscal of 2019-20, when the
inflows were $74.39 billion.

• In a statement issued by the Commerce Ministry, FDI equity inflow grew by 19 per cent in
2020-21 and were $59.64 billion, compared to $49.98 billion in 2019-20.

• Computer software & hardware emerged as the top sector during 2020-21 with around 44 per
cent share of the total FDI equity inflow followed by construction (infrastructure) activities (13
per cent) and services sector (8 per cent) respectively.
• Horizontal FDI
• The most common type of FDI is Horizontal FDI, which primarily revolves around
investing funds in a foreign company belonging to the same industry as that
owned or operated by the FDI investor.
• Here, a company invests in another company located in a different country,
wherein both the companies are producing similar goods.
• For example, the Spain-based company Zara may invest in or purchase the Indian
company Fab India, which also produces similar products as Zara does.
• Since both the companies belong to the same industry of merchandise and
apparel, the FDI is classified as horizontal FDI.
• Vertical FDI
• Vertical foreign direct investment occurs when a multinational decides to
acquire or build an operation that either fulfills the role of a supplier (backward
vertical FDI) or the role of a distributor (forward vertical FDI).

• For instance, the Swiss Coffee producer Nescafe may invest in coffee plantations
in countries such as Brazil, Columbia, Vietnam, etc. Since the investing firm
purchases, a supplier in the supply chain, this type of FDI is known as backward
vertical integration.

• Conversely, forward vertical integration is said to occur when a company invests


in another foreign company which is further along in the supply chain, for
instance, a coffee company in India may wish to invest in a French grocery
brand.

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