FDI, Foreign Direct Investment is an investment made by a company or
entity based in one country, into a company or entity based in another country.
It can also be defined as that a Foreign direct investment (FDI) is a
direct investment in production or business in a country by an individual or
company in another country, either by buying a company in the target country or
by expanding operations of an existing business in that country.
Direct investment outside India
means investments, either under the Automatic Route or the Approval Route, by
way of contribution to the capital or subscribe to the Memorandum of
Association of a foreign entity, signifying a long-term interest in the
overseas entity (setting up / acquiring a Joint Venture (JV) or a Wholly Owned
Subsidiary (WOS)
Why FDI is sought?
- Domestic capital is inadequate for the purpose of economic growth
- Foreign capital is usually essential, during the period when the capital market is in the process of development
- Foreign capital generally brings it with other scarce productive factors like technical know-how, business expertise and knowledge
Significance of Overseas Direct Investments (ODI) for the Country and
for the Investor
- Joint Ventures / Wholly Owned Subsidiaries abroad promote economic co-operation betwee
- India and the host countries. They result in
- Transfer of technology and skills
- Sharing the results of Research & Development
- Access to the global market
- Promotion of the brand image
- Generation of employment and utilization raw materials available in India and the host country
- Increased exports of plant and machinery and goods and services from India
- Foreign exchange earnings through dividend earnings, royalty, technical know-how fee, etc.
- Since globalization of trade is a two-way process, integration of the Indian economy with the rest of the world with all its attendant benefits is achieved through overseas investment. It is the reverse of Foreign Direct Investment (FDI) i.e. Indian direct investment abroad.
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