FDI In­flows in In­dia : A Cur­sory Look

- Viney & Kal­pana Hooda

Economic Challenger - - NEWS - *Viney **Kal­panaHooda

*Re­search Scholar, Dept. of Com­merce, M.D.U, Ro­htak. Email:viney­suha­grs@gmail.com **Re­search Scholar, Dept. of Com­merce, M.D.U, Ro­htak. E-Mail:kal­panahooda@gmail.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.

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