Foreign direct investment (FDI) refers to long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are three types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and " stock of foreign direct investment" , which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. It is the policy of the Government of India to attract and promote productive FDI from nonresidents in activities which significantly contribute to industrialization and socio-economic development. FDI supplements the domestic capital and technology. India has one of the most transparent and liberal FDI regimes among the emerging and developing economies. By FDI regime we mean those restrictions that apply to foreign nationals and entities but not to Indian nationals and Indian owned entities. The differential treatment is limited to a few entry rules, spelling out the proportion of equity that the foreign entrant can hold in an Indian (registered) company or business.Foreign direct investment (FDI) has become an integral part of national development strategies for almost all the countries globally. Its global popularity and positive output in augmenting of domestic capital, productivity and employment; has made it an indispensable tool for initiating economic growth for nations. India is evolving as one of the ‘most favored destination’ for FDI in Asia and the Pacific (APAC). It has displaced US as the second-most favored destination for foreign direct investment (FDI) in the world after China according to an AT Kearney's FDI Confidence Index. FDI in India has contributed effectively to the overall growth of the economy in the recent times. FDI inflow has an impact on India's transfer of new technology and innovative ideas; improving infrastructure, a competitive business environment.
BY DIRECTION :
1. Inward FDI -Here, investment of foreign capital occurs in local resources. The factors propelling the growth of Inward FDI comprises tax breaks, relaxation of existent regulations, loans on low rates of interest and specific grants. The idea behind this is that, the long run gains from such a funding far outweighs the disadvantage of the income loss incurred in the short run. Flow of Inward FDI may face restrictions from factors like restraint on ownership and disparity in the performance standard. 2. Outward FDI:Foreign direct investment, which is outward, is also referred to as “direct investment abroad”. In this case it is the local capital, which is being invested in some foreign resource. Outward FDI may also find use in the import and export dealings with a foreign country. Outward FDI flourishes under government backed insurance at risk coverage. * BY TARGET –
1. Greenfield FDI :Greenfield investments involve the flow of FDI for either building up of new production capacities in the host nation or for expansion of the existent production facilities of the host country. The plus points of this come in form of increased employment opportunities, relatively high wages, R&D activities and capacity enhancement.The flip side comes in the form of declining market share for the domestic firm and repatriation of profits made to a foreign country, which if retained within the country of origin could have led To considerable capital accumulation for the nation. 2. Horizontal FDI :Horizontal FDI is an investment made by a multinational company in different nations. The investment is made for conducting the similar business operations as already operated by the company. For example, if a soft drink manufacturing company makes its plant outside its national borders then it is horizontal FDI. Horizontal FDI results in expansion of the parent company and brings FDI in the other economy. 3. Vertical...
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