Foreign Direct Investment

(FDI)
MBA 2020-2022
 FDI – content
• Meaning
• FDI in India
• Types of FDI – Routes
• New FDI Policy
• Government Measures to increase FDI in India
 Foreign investment
• Foreign investment refers to the investment in domestic companies and assets of
another country by a foreign investor.
• Foreign direct investments – FDI
– include long-term physical investments made by a company in a foreign country,
such as opening plants or purchasing buildings.
• Foreign indirect investment
– involves corporations, financial institutions, and private investors that purchase
shares in foreign companies that trade on a foreign stock exchange.
• Commercial loans are another type of foreign investment and involve bank loans
issued by domestic banks to businesses in foreign countries or the governments of
those countries.
 Definition:
• Foreign direct investment (FDI) is an investment made by
a company or an individual in one country into business
interests located in another country.
• FDI is when a foreign entity acquires ownership or
controlling stake in the shares of a company in one
country, or establishes businesses there
• Any investment from an individual or firm that is located
in a foreign country into a country is called Foreign
Direct Investment. 
 Points to remember ..
• different from foreign portfolio investment
• foreign entity has a say in the day-to-day operations
• not just the inflow of money, but also the inflow of technology,
knowledge, skills and expertise/know-how.
• major source of non-debt financial resources
• takes place in an economy which has the prospect of growth and
also a skilled workforce.
• FDI are not evenly distributed
Lets Revise ..
• Home country vs Host country
 determinants of FDI in host
countries

– Policy framework
– Rules with respect to entry and operations/functioning
(mergers/acquisitions and competition)
– Political, economic and social stability
– Treatment standards of foreign affiliates
– International agreements
– Trade policy (tariff and non-tariff barriers)
– Privatisation policy
 FDI Routes in India

Category 1 Category 2 Category 3

100% FDI permitted Up to 100% FDI Up to 100% FDI
through Automatic permitted permitted
through Government through Automati
Route Route c + Government
Route

The foreign entity does not
require the prior approval of
the government or the RBI.
Examples:
•Medical devices: up to 100%
•Thermal power: up to 100%
Airport transport services upto 49%
the foreign entity should compulsorily
(auto) (Upto 100%
take the approval of the government.
under automatic route for NRIs) +
It should file an application
above 49% (Govt.)
Banking & Public sector: 20%
Food Products Retail Trading: 100%
Core Investment Company: 100%
 Foreign Direct Investment (FDI) in India
• According to Department for Promotion of Industry and Internal Trade (DPIIT), FDI equity
inflow in India stood at US$ 500.12 billion between April 2000 and September 2020, indicating that
Government's effort to improve ease of doing business and relaxing FDI norms has yield results.
• Data for 2020-21 indicates that computer software and hardware sector attracted the highest
FDI followed by the service sector ,trading and chemicals (other than fertilizers).
• In 2020-21 , India received the maximum FDI equity inflows from Singapore followed by the US,
Cayman Islands, Mauritius, the Netherlands and the UK.
• In 2020-21 , Gujarat received the maximum FDI equity inflows , followed by Maharashtra,
Karnataka and Delhi.
 Cntd…
• In 2019, India was among the top ten receivers of FDI, totalling $49 billion inflows, as per a UN
report. This is a 16% increase from 2018.
• In February 2020, the DPIIT notifies policy to allow 100% FDI in insurance intermediaries.
• In April 2020, the DPIIT  came out with a new rule, which stated that the entity of nay company
that shares a land border with India or where the beneficial owner of investment into India is
situated in or is a citizen of such a country can invest only under the Government route. In other
words, such entities can only invest following the approval of the Government of India
• In early 2020, the government decided to sell a 100% stake in the national airline’s Air India.
 List of prohibited sectors:
• Agricultural or Plantation Activities (although there are many exceptions like
horticulture, fisheries, tea plantations, animal husbandry, etc.)
• Atomic Energy Generation
• Nidhi Company
• Lotteries (online, private, government, etc.)
• Investment in Chit Funds
• Trading in TDR’s
• Any Gambling or Betting businesses
• Cigars, Cigarettes, or any related tobacco industry
• Housing and Real Estate (except townships, commercial projects, etc.)
 Foreign institutional investors (FIIs) 
• Foreign institutional investors (FIIs) are those institutional investors
which invest in the assets belonging to a different country other than
that where these organizations are based.

•FDI is an investment that a parent company makes in a foreign country. On the contrary, FII is an investment
made by an investor in the markets of a foreign nation.
•The FDI flows into the primary market, while the FII flows into secondary market.
•While FIIs are short-term investments, the FDI’s are long term investment.
•FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that
easily.
•The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor.
 Types of FDI

making or becoming the purchase of a

greater in size or amount company by buying its
assets instead of its stock
What Is a Green-Field Investment?

 A green-field (also "Greenfield") investment

 is a type of Foreign Direct Investment (FDI) in which a parent company creates a
subsidiary in a different country,
 building its operations from the ground up.
 In addition to the construction of new production facilities, these projects can also
include the building of new distribution hubs, offices, and living quarters.
 They are direct investments—that provide the highest degree of control for the
sponsoring company.
 Green-field investments carry the same high risks and costs associated with building
new factories or manufacturing plants.
Greenfield vs. Brownfield Investments:


 Greenfield investment, parent company opens Brownfield investments, on the other hand,
a subsidiary in another country. occur when an entity purchases or leases an

 Instead of buying an existing facility in that existing facility to begin new production.
country, the company begins a new venture by
constructing new facilities in that country. Companies may consider this approach a great
time and money saver since

 Construction projects may include more than just a
production facility. there is no need to go through the motions of

 They sometimes also entail the completion of building a brand new building.
offices, accommodations for the company's staff and
management, as well as distribution centers.
Third Country Location

Example :  • Third country location is some times used as an entry

India and Pakistan• It strategy
has been the practice
earlier to Import or  • When there is no commercial transactions between
Export through / Via
Arab Countries sinc
two nations because of political reasons or when direct
e the relationship has transactions between two nations are difficult due to
been bad between
both the Countries political reasons
 In such a situation a firm in one of
those countries which wants to enter the other market
will have to operate from the third country
THANKYOU………………