Foreign Investment

Policy
Presentation by
Noora Yasmin
 Foreign Investment

Foreign investment is when a company or

individual from one nation invests in assets or
ownership stakes of a company based in another
nation.

Large multinational corporations will seek new

opportunities for economic growth by opening
branches and expanding their investments in
other countries.
Types of Foreign Investment

Funds from foreign country could be invested in shares,

properties, ownership / management or collaboration. Based
on this, Foreign Investments are classified as below.

* Foreign Direct Investment (FDI)

* Foreign Portfolio Investment (FPI)
* Foreign Institutional Investment (FII)
Foreign Direct Investment

Foreign Investment Policy, or FDI is a type of

investment that involves the injection of foreign
funds into an enterprise that operates in a
different country of origin from the investor.

In simple term, FDI is “investment in a company

by a country other than that in which the
company is based.
Foreign investment is freely permitted in almost all
sectors. Foreign Direct Investments (FDI) can be
made under two routes—

• Under the Automatic Route, the

foreign investor or the Indian
Automatic
company does not require any
Route
approval from RBI or Government of
India for the investment.
• Under the Government Route, prior
Government
permission and approval will be
Route
needed compulsorily.
Types of FDI

Horizontal Under this type of FDI, a business expands its inland

operation to another country. The business undertake the same
activities but in foreign country.

In this case, a business expands into another country by

Vertical moving to a different level of supply chain. Thus business
undertakes different activities overseas but these activities are
related to main business.

Under this type of FDI, a business undertakes unrelated

Conglomerate business activities in a foreign country. this type is uncommon
as it involves the difficulty of penetrating a new country and
an entirely new market.

Platform
Here, a business expands into another country but the output
from the business is then exported to a third country.
 How does FDI occur in India

There are two routes by which India gets

FDI.
* Automatic route: By this route FDI is allowed without prior
approval by Government or Reserve Bank of India.
* Government route: Prior approval by government is
needed via this route. The application needs to be made
through Foreign Investment Facilitation Portal, which will
facilitate single window clearance of FDI application under
Approval Route.
Sectors in which FDI is prohibited in India

* Gambling, lottery and betting business

* Activities /sectors not open to private sector investment (atomic
energy /railways)
* Real estate and housing (excluding townships and commercial
projects)
* Business of chit fund
* Atomic energy generation
* Trading in transferable development rights (TDRs)
* Products manufactured by the tobacco industries.
* Agriculture and plantation activities (excluding animal husbandry,
fisheries, tea plantations, horticulture and pisciculture)
India's FDI Inflow in Fiscal year 2021-22
The Ministry of Commerce and Industry said that
India's Foreign Direct Investment [FDI] inflow in the Financial
Year 2021-22 reached an all-time high of USD 83.57 billion,
despite the Russia-Ukraine war and Covid-19 pandemic

Does India need FDI for economic growth?

India is a developing nation, trying to make its way up the
ladder in the world economy. To achieve its goal, it
requires influx of investment, both national and
international.
 Advantages of FDI

FDI results in FDI enhances a

FDI stimulates in
increased country’s finance
economic
employment and technology
development
opportunities sectors

FDI results in the Creation of a

development of competitive
human resources market
 Total FDI Inflows reported during the
last four fiscal years

S. Financial Year Amount of FDI inflows

No. (in USD billion)

1. 2018-19 62.00

2. 2019-20 74.39

3. 2020-21 81.97

4. 2021-22 83.57
Foreign Portfolio Investment
Foreign portfolio investment (FPI) consists of securities
and other financial assets held by investors in another
country. It does not provide the investor with direct
ownership of a company's assets and is relatively liquid
depending on the volatility of the market.

Since portfolio investments can be easily sold off and are

therefore perceived as a short-term effort to make money
instead of a long-term investment in the economy, this sort
of investment is sometimes viewed less positively than
direct investment
 Various categories of FPI

• This contains financial assets backed by the

Category I (or low Indian government. Examples are government
risk) bonds, any fund owned by the Indian state, a
sovereign wealth fund, etc.

Category Il (or • This includes bank deposits, mutual funds,

moderate risk) insurance policies, pension funds, etc.

• This comprises all such foreign portfolio

Category Ill (or high investments that are not covered under the
risk) first two categories. Like charitable trusts or
endowments.
What are the benefits of foreign portfolio
investment?

FPI boost demand for

the stock of companies Access to markets with
and help them when it Portfolio diversification different risk-return
comes to raising characteristics
capital at low costs.

Increases the liquidity Promotes the

International credit of domestic capital development of equity
markets markets