Today, India is one of the most attractive destinations for foreign direct investment. The county’s stable economy and liberalized FDI policies makes it the perfect destination for investments. The Government of India has liberalised Foreign Direct Investment policies and norms for NRI’s (non-resident Indian) and PIO’s (person of Indian origin) in order to encourage capital flows into the country.
Foreign direct investment is when a party from one county invests in a business based in another country with the intention of a lasting interest in the said corporation. A lasting interest is ensured by giving foreign investors a minimum of 10 per cent voting rights in the business. A controlling ownership in the firm distinguishes foreign direct investment from foreign portfolio investment.
Foreign direct investment is defined by the International Monetary Fund (IMF) as- “a category of international investment that reflects the objective of a resident entity in one economy (direct investor or parent enterprise) obtaining a lasting interest and control in an enterprise resident in another economy (direct investment enterprise)”.
A foreign entity can make a foreign direct investment by expanding their current business in a foreign country. They can also reinvest profits from overseas operations, as well as inter company loans to overseas subsidiaries.
FDI in India can be done in multiple ways. Below are enlisted the ways in which a foreign investor can penetrate the Indian market:
- Mergers and acquisitions
- Acquiring voting stock in a foreign company
- Joint ventures with foreign corporations
- Starting a subsidiary of a domestic firm in a foreign country
Foreign direct investment equity inflows have other benefits apart from being a critical driver of economic development. They bring in new technology, create more employment, help in improving infrastructure, facilitate technological know how, and bring in managerial expertise.
An overseas investor (business or individual) is also benefited in a plethora of ways:
- Preferential tariffs
- Tax incentives
- Market diversification
- Lower labour costs