FDI is defined as a category of international investment that reflects the objective of a resident in one economy (the direct investor) obtaining a lasting interest in an enterprise resident in another economy (the direct investment enterprise).
“ investment in a foreign country where the investor retains full control over the investment”
Foreign Direct Investment (FDI) is considered as one of the most important tools of capital infusion in a country
Under this procedure, any individual, organization or company which wants to invest in India can do so without receiving any prior approval of either Government or RBI.. eg. Coffee and rubber processing & warehousing- 100% FDI allowed under automatic route.
2. UNDER GOVERNMENT APPROVAL ROUTE
Under this procedure, any individual, organization or company which wants to invest in India in any activity not covered under automatic route can do so after taking prior approval from the Government. Approvals of all such proposals are granted on the recommendations of Foreign Investment Promotion Board (FIPB). eg. Cigars and cigarettes manufacture- 100% FDI allowed under FIPB route
The need of FDI was recognized by the administration under Prime Minister Narasimha Rao and starting in the early 1990s, India began to liberalize the economic policies and started opening the Indian markets to foreign investments. Foreign Direct Investment (FDI) started flowing into India.
Foreign direct investment involves investment in physical assets of a country. For example investment in land, building, plant, etc. whereas foreign institutional investment involves investment in the securities, stocks and shares of the companies situated outside the country of the investor .
A foreign institutional investment, once made, is easily reversible. However, a foreign direct investment once made, is not easily reversible.