Foreign Direct Investment (FDI)- A gold key for a country’s growth…

Foreign Direct Investment (FDI)- A gold key for a country’s growth…

“Foreign relations is an open book- generally a CHECKBOOK.”

INTRODUCTION:

Investments of a firm or an individual located over the sea into another country is referred as Foreign Direct Investment (FDI).

Generally, FDI is pertinent when a foreign establishment procures ownership and management rights(shares) of a company in one country.

If the foreign operational body acquires 10% of the shares it will have entitlement over few management settlements whereas if it acquires or buys 51% or more shares then the whole administration goes in the hands of the foreign company that is then called as the ‘holding company.’

FDI is not just the overseas monetary flow but it also considers skills, technology and knowledge.

CONVINCING FACTORS FOR FDI:

Decisive factors of FDI in countries are as follows-

  • Policy framework
  • Political, economical and social stability
  • Foreign policies
  • Trade policy
  • International agreements

FDI IN INDIA:

After 1991, when LPG ( liberalization, privatization and globalization) strategies were enacted in India, its investment ambience was influenced by LPG enormously.

Toning down FDI norms in India is apprehended to be the principal cause of refinement of the investment sector.

Presently, India is graded in the top 100 countries in effortless dealings in businesses.

In 2019, India was amongst the top ten recipients of FDI, evaluating $49 billions as per the UN reports, which was an increase of 16% from the year 2018.

FDI PASSAGES IN INDIA:

FDI in India flows through following two courses:

AUTOMATED ROUTEGOVERNMENT ROUTE
Foreign entity does not require prior approval of the government or the RBI
       
Examples-
Medical devices up to 100%    
Thermal power up to 100%      
Insurance up to 49%
Foreign entities should compulsorily take approval from the government.·        

Examples-
Banking sector up to 20%        
Food products retail trading up to 100%         Broadcasting content services up to 49%

SECTORS EXEMPTED FROM FDI:

There are few sectors where FDI is barred. They are –

  • Atomic energy generation
  • Nidhi company
  • Lotteries
  • Chit fund investments
  • Any type of gambling and betting businesses
  • Agricultural and plantation activities ( except horticulture, Pisciculture etc.)
  • Any tobacco industry
  • Housing and real estate ( except townships, commercial projects etc.)

NEW BLUEPRINT OF FDI POLICY IN INDIA:

Historically, FDI policy was narrowed to only Bangladesh and Pakistan via the government routes in all sectors.

Now, as per the new FDI policy, an entity of a country, which shares land border with India can invest only under the government routes.

Investors from other countries that are not enclosed by the new policy only have to inform the RBI (Reserve Bank of India) after a transaction in place of asking for prior consent.

LEGAL CODES ENCODED ON FDI:

In India adequate laws are formed and implemented to regulate FDI , namely;

  • Companies act
  • SEBI act 1992
  • FEMA
  • Indian contract act , 1872
  • Competition act, 2002
  • Income tax act , 1961
  • FDI policy
  • Civil procedure code, 1908
  • Arbitration and conciliation, 1996

AUTHORITIES IN CHARGE:

Authorities that takes care of the efficient administration of the FDI are as following –

  • Foreign investment promotion board (FIPB)
  • Securities and exchange board of India (SEBI)
  • Directorate general of foreign trade (DGFT)
  • Reserve Bank of India (RBI)
  • Department for promotion of industry and internal trade (DPIIT)
  • Income tax department
  • Several ministries of Government of India

CONCLUSION:

FDI brings financial resources for the economic development embedded with new and innovative technologies, different skill sets and profound knowledge, which upgrades the quality of products and services of any country that strives to survive in the cut throat race for becoming ‘ECONOMIC SUPER POWER’.

 

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