Foreign direct investment (FDI) refers to investment made by companies or individuals in one country into business interests located in another country. FDI can occur through establishing new operations or acquiring existing foreign companies. Companies engage in FDI to take advantage of cheaper resources, tax incentives, and access to new markets. Foreign investors can acquire stakes in overseas companies through wholly owned subsidiaries, share purchases, mergers and acquisitions, or joint ventures. India welcomes FDI in many sectors under certain conditions to promote economic growth, technology transfer, competition, human resource development and employment, while also managing disadvantages like impacts on local markets.

1. FOREIGN DIRECT
INVESTMENT.

2. What is FDI ?
Foreign direct investment (FDI) is a direct investment into
production or business in a country by an individual or a
company of another country, either by buying a company in the
target country or by expanding operations of an existing
business in that country.
Why FDI ?
 To take advantage of cheaper wages and natural
resources of the country.
 Special investment privileges such as tax
exemptions offered by the country.
 To gain tariff-free access to the markets of the
country or the region.

3. Methods of FDI
The foreign direct investor may acquire voting
power of an enterprise in a economy through any
of the following methods:
•By incorporating a wholly owned subsidiary or
company.
•By acquiring shares in a associated enterprise.
•Through merger or an acquisition of an
unrelated enterprise.
•Participating in a equity joint venture with
another investor or enterprise.

4. Advantages of FDI
Integration into global economy.
Economic Growth.
Technology diffusion and knowledge transfer.
Increased Competition.
Human Resource Development.
Employment.

5. Disadvantages of FDI
 Local Market is affected badly.
 Inflation is raised.
 The Language and cultural barrier may pose
problems between the investor and the host
company.
 High travel and communication expenses
occur.
 The foreign policies involved in the FDI may
not be liked by the workers of host country.
 Destruction of small entrepreneurs.
 Creation of Monopoly.

6. FDI in India.
Foreign investment in India introduced in 1991
under Foreign Exchange Management Act
(FEMA), driven by then finance minister
Manmohan Singh.
India’s investment policy is Foreign investor
friendly. Government of India welcomes FDI in all
sectors except some where FDI is prohibited due
to strategic reasons.

7. Sector wise FDI in India.
Sector % of FDI Permissible
Civil Aviation 49%
Hotel & Tourism 100%
Non-Banking Financial
Companies
49%
Insurance Sector 49%
Drugs & Pharmaceuticals 100%
Power Sector 100%
Trading Company 51%
BPO 100%
Defense Sector 26%
Telecom 100%

8. Recent Developments in
FDI in India
New NDA Government is Planning to allow
100% FDI in Defense Sector.
Government is also planning to introduced FDI
in Railways.
New NDA has a strong stand against FDI in
Retail Sector.
New Government is also planning to allow FDI
in Media Sector.

9. Sameer Joshi.