Foreign direct investment is when an investor living in one country invests in a business based in another country. Under FDI, the foreign investor (individual or business) owns 10 per cent of the company where the investment is being made. If the investor owns less than 10 per cent, the International Monetary Fund (IMF) defines it as part of his or her stock portfolio. Therefore, under FDI, the investors holds a certain degree of influence on the management of the enterprise where the investment is being made.
What is notable is that the investors not only bring in money but also new technology, managerial expertise, new ideas and more employment.
Foreign direct investment by an individual or a company based outside the country is regulated through two routes- the automatic route and approval route.
1) The automatic route
Under this route, investment into different sectors are less restricted. Foreign direct investment norms and regulations are more liberalised. Here, the overseas investor or the Indian company does not require a prior approval from the Reserve Bank of India (RBI) or government of India for investment into the country.
2) Approval route
The approval route is a little restricted. The foreign investor or the Indian company has to take a prior approval from the Reserve Bank of India (RBI) or the government of India before making an investment.
If a foreign investor is interested in investing in the Indian market , he can do so in the following ways:
1)Mergers and Acquisitions
2) Getting voting stocks in a business based in another country
3) Joint ventures with firms based overseas
4) Starting a subsidiary of a domestic firm in a foreign country.