Foreign companies and businesses or for that matter, any company, wishes to expand its horizon. To do so, they opt different methods and paths. NRIs or Foreign Companies are allowed to take part in enhancing the capital of Indian Companies by the following routes:
- Investing in the shares under Portfolio Investment Route on Recognized Stock Exchanges.
- Foreign Direct Investment is another important source of funds for Indian Companies.
FDI or Foreign Direct Investment is when an individual or an entity invests overseas money in an Indian company. As per the census carried out by the OECD, Organization for Economic Co-operation & Development, an investment that scales above 10% from the overseas is considered as an FDI. The regulation of FDI policy happens under the Foreign Exchange Management Act 2000, governed by the Reserve Bank of India.
What are the two routes for FDI in India?
Foreign companies who wish to invest in India can take one of the following route,
- Automatic Route, this doesn’t require any prior approvals from RBI, or
- Government Route, this requires a prior approval via a single window from the concerned departments.
For all the companies looking for FDI in India can make their way through one of the ways, except in prohibited sectors. FDI being a capital account transaction doesn’t allow and handle violation of its regulations. It attracts penal provisions in case of discrepancy, under the FEMA. RBI administers FEMA and Directorate of Enforcement, Ministry of Finance – Government of India has the authority to investigate in case of any violation of its rules.
Methods of Foreign Direct Investment
An investor can very well make a foreign direct investment, to do so the business must be expanded in a foreign country. The next step would be to reinvest the profits from all the overseas operations, and intracompany loans to the overseas subsidiaries. For the domestic investors, here are some of the methods available to acquire the voting power in any foreign company:
- Acquiring voting stock in a foreign company
- Mergers and acquisitions
- Joint ventures with foreign corporations
- Starting a subsidiary of a domestic firm in a foreign country
Benefits of Foreign Direct Investment
Here are some of the benefits for businesses:
- Preferential tariffs
- Market diversification
- Lower labor costs
- Tax incentives
Here are some of the benefits for the host country:
- Economic stimulation
- Increase in employment
- Access to management expertise, skills, and technology
- Development of human capital
For businesses who are looking for help in the realm of FDI, FDI India, is a great option for you. You can reach out to us for all your investment queries, help, and troubles. We can connect you with the right investor who will prove to be lucrative for your business.