Foreign Direct Investment

(FDI)
By - 1. Satya Prakash Mishra
2. Mohit Gupta
3. Satyam Tripathi
4. Mohammad Azeem
5. Karanveer Singh
6. Rishabh Tripathi
Foreign Direct Investment

Foreign Direct Investment (FDI) is an investment made by a company or individual

from one country into a business or company in another country, with the aim of
establishing a lasting interest in the foreign firm.

R
Types of Foreign Direct
Investment
Horizontal FDI
Horizontal FDI occurs when a company expands its operations to a foreign market by producing the same goods or services
as in its home country.

1 Examples 2 Benefits 3 Challenges

A car manufacturer opening a Access to new markets, Cultural differences, legal

factory in another country to economies of scale, and regulations, and competitive
produce cars for the local reduced trade barriers. landscape.
market.
Vertical FDI
Vertical FDI occurs when a company establishes different stages of production or distribution in multiple countries, allowing
for cost savings or optimized supply chain.

Backward Integration

A company acquires suppliers in a foreign market to control its raw materials or components.

Forward Integration

A company acquires distributors in a foreign market to control its sales and distribution.
 Conglomerate FDI
Conglomerate FDI occurs when a company expands its operations into a foreign market that is unrelated to its existing
business.

Benefits Examples

Diversification of business interests and reduction of risk. Merger between a technology company and a food
processing company.
FDI Routes in India
Automatic Route Government Route

FDI under the automatic route does not require FDI under the government route requires approval
prior approval from the government and allows from the respective government department, and
investments in most sectors, subject to certain certain sectors require mandatory government
conditions. approval.
FDI Modes

1 Greenfield 2 Mergers and 3 Joint Ventures

Investments
Building new facilities or
acquiring land to establish a
new venture in the host
country.
Acquisitions
Acquiring existing
companies or assets in the
host country to expand
business operations.
Collaborating with a local
company in the host country
to carry out business
activities jointly.
Advantages of FDI

1 Capital 2 Technology 3 Employment

Foreign investors can bring in FDI often comes with new FDI can create jobs in the
significant capital to finance technologies that can host country and increase the
new projects. improve productivity and standard of living.
quality.
Advantages of FDI
4 Economic Growth

FDI stimulates economic growth by attracting job opportunities, promoting

entrepreneurship, and facilitating technology transfer.

5 Enhanced Infrastructure

FDI inflows contribute to infrastructure development, which improves transportation,

power generation, and communication systems.

6 Knowledge Exchange

FDI fosters knowledge exchange between foreign companies and local firms, leading
to skill enhancement and a competitive edge.
 Disadvantages of FDI
Cultural Challenges
FDI can face cultural barriers,
translation issues, and conflicts
arising from diverse work
environments, which require
effective management strategies.
Profit Repatriation
Foreign companies may choose to
repatriate profits back to their home
country rather than reinvesting them
in the host country
Financial Risks
FDI investments may be subject to
financial risks, such as exchange
rate fluctuations, economic
uncertainties, and market volatility.
 FDI in India

Total FDI in India Total FDI inflow

• Mauritius 26 %

• 45.15 bn $ in 2014-15 • Singapore 23%

• 60.22 bn in 2016-17 • USA 9%

• Netherland 7%
• 83.57 bn in 2021-22

• Japan 6%

Source www.investindia.gov.in
 FDI in India

Top sectors which receives FDI Top States Which Receives FDI

1. Finance 1. Maharashtra 29 %

2. Karnataka 24%
2. Banking & Insurance
3. Gujarat 17%
3. R & D
4. Delhi 13%

4. Technology
5. Tamil Nadu 5%
Sectors and their limits in FDI

Air transport services up to 100%

Airports up to 100%

Auto components up to 100%

Automobile 100 %

Biotechnology( brownfield )74%

Defence 74%

Petroleum refining 49%

 Prohibited Sectors FDI
Lotteries and
Atomic Energy Chit Funds
Gambling

FDI is prohibited in lotteries, The atomic energy sector in India Investment schemes called "chit
gambling, and betting activities to is restricted for FDI due to funds" are prohibited from FDI to
safeguard public interest and strategic importance and security prevent fraudulent practices and
maintain social order. concerns. protect investors.

Cigarette,Cigar Tobacco Manufacturing Real Estate

 Factors Affecting the FDI

Political stability Labor laws

Investors prefer stable political environments with a clear, Labor laws and regulations can have a significant impact
predictable regulatory framework. on foreign investment.
Factors Affecting FDI
3 Economic Stability

A stable macroeconomic environment with low inflation, consistent policies, and

conducive business conditions attract higher FDI.

4 Market Size and Potential

A large market size, growing middle class, and untapped potential in various sectors
attract foreign companies to invest in India.

5 Infrastructure Development

Reliable infrastructure, including power supply, transportation networks, and

communication systems, positively impact FDI inflows.
 Factors Affecting FDI

6 Taxation 7 Technology and 8 Skill Development

Lower tax rates attract
foreign investors.
Innovation
The presence of advanced
technology, research
institutions, and innovation
capabilities make India an
attractive destination for
FDI.
Availability of skilled
workforce, vocational
training programs, and
continuous skill
development initiatives
encourage FDI.
 Conclusion
Foreign Direct Investment is a powerful catalyst for economic growth,
technological advancement, and global collaboration. By understanding the routes,
modes, policies, and factors influencing FDI, we can unlock new opportunities and
shape a prosperous future.