FDI Inflows in India : A Cursory Look
- Viney & Kalpana Hooda
*Research Scholar, Dept. of Commerce, M.D.U, Rohtak. Email:firstname.lastname@example.org **Research Scholar, Dept. of Commerce, M.D.U, Rohtak. E-Mail:email@example.com
Foreign Direct Investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforce and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies. The investing company may make its overseas investment in a number of ways - either by setting up a subsidiary or associate company in the foreign country, or by acquiring shares of an overseas company, or through a merger or joint venture. According to the International Monetary Fund , foreign direct investment, commonly known as FDI, "... refers to an investment made to acquire lasting or long- term interest in enterprises operating outside of the economy of the investor." The investment is direct because the investor, which could be a foreign person, company or group of entities, is seeking to control, manage, or have significant influence over the foreign enterprise. FDI has helped India to attain a financial stability and economic growth with the help of investments in different sectors. FDI has boosted the economic life of India and on the other hand there are critics who have blamed the government for ousting the domestic inflows. After liberalization of Trade policies in India, there has been a positive GDP growth rate in Indian economy. Foreign direct investment helps in developing the economy by generating employment to the unemployed, generating revenues in the form of tax and incomes, financial stability to the government, development of infrastructure, backward and forward linkages to the domestic firms for the requirements of raw materials, tools, business infrastructure, and act as support for financial system. Forward and back ward linkages are developed to support the foreign firm with supply of raw material and other requirements. It helps in generation of employment and also helps in poverty eradication. There are many businesses or individuals who would earn their livelihood through foreign investment inflows.
An Indian company may receive Foreign Direct Investment under the two routes as given under:
1. Automatic Route: FDI in sectors /activities to the extent permitted under the automatic route does not require any prior approval either of the Government or the Reserve Bank of India.
2. Government Route: FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. FDI is not permitted in the following industrial sectors: 1. Arms and ammunition. 2. Atomic Energy. 3. Railway-Transport. 4. Coal and lignite. 5. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.