FDI- Foreign Direct Investment

FDI – Foreign Direct Investment

Foreign Direct Investment is when persons/companies who/which are non-Indian,

Invest in Indian companies.

Thus, through FDI, the investors become the shareholders in Indian companies and usually have stake that will give them controlling power of the company. FDI can be done in many ways – popular of which are through acquiring of shares and merger and acquisition.

Also important to know is that there are two ‘routes’ of FDI, namely, Automatic Route(does not require RBI or Central Government approval) and the Government Route (requires the approvals for those not covered under the automatic route).

Why would anyone invest in India?

Well, there are plenty of reasons – why would a foreign company invest in any Indian Company?

• There could be tax incentives,
• The company believes that doing a particular business will be more profitable in India.
• There could be tax exemptions favorable to the company both in India and in the company’s home country.
• The company might be aiming at starting operations in South Asia and India is the most developing economy in this part of the world.

Meaning of FDI to India

• FDI brings in more capital into the economy.
• It brings in the much needed foreign exchange – foreign currency.
• It also boosts the domestic economy and industries and generally triggers a positive economic ripple effect.
• It brings in more revenues for the Income Tax Department.
• Advanced technology touches the shores of the host country, along with technically superior human resource.

Sectors where FDI is ALLOWED and the latest caps.

• Petroleum Refining by PSU (49%).
• Cable Networks (49%).
• Print Media (26%).
• Air transport services- scheduled air transport (49%), non-scheduled air transport (74%).
• Ground handling services – Civil Aviation (74%).
• Satellites- establishment and operation (74%).
• Private security agencies (49%).
• Private Sector Banking (74%).
• Public Sector Banking (20%).
• Commodity exchanges (49%).
• Credit information companies (74%).
• Infrastructure companies in securities market (49%).
• Insurance and sub-activities (49%).
• Power exchanges (49%).
• Defence (49% above 49% to CCS).
• Pension Sector (49%)

Sectors where FDI is NOT ALLOWED

FDI in the following sectors are prohibited completely – i.e., under both Automatic and Government routes it is not allowed.

• Atomic Energy
• Agricultural and Plantation activities
• Gambling, betting and lottery
• Nidh is and Chit Funds
• Real Estate
• Manufacture of cigarettes and tobacco