No business can stay afloat without funds. At some point or the other, a business requires investments to either stay in business or expand it. Start-ups, a growing culture in India are also founded on the strong foundation of investments.
More and more established or aspiring business people are turning towards obtaining funds from outside India. One reason to do so is the high rate of interests of funds. Another reason that accompanies these high rate of interest is the hectic processes in place. Foreign investors, on the other hand, are readily interested to invest in Indian businesses given the nation’s stable economy. India is one of the most attractive destinations for foreign direct investment in the world. The subsidized rates and relatively cheaper wages attract overseas investors.
There are two ways in which a foreign investor can invest in the Indian market- Automatic and Government route.
While the government route requires a prior approval from the centre and its ministries, no such approval is needed under the automatic route.
There are mainly three types of foreign direct investment. They are outlined below:
- Horizontal FDI– In this type of investment, a business expands its existing operations to a foreign country. For example, Burger King opening restaurants in China.
- Vertical FDI– Under this type of investment, a company expands to another country by moving to a different level of the supply chain. The company undertakes different business activities in the foreign country but these activities are related to the main business. For example, If Burger King buys a farm in China to produce meat, it will be considered as a vertical investment.
Conglomerate FDI- In this type of investment, a company established an unrelated business in another country. However, this type of investment is common because entering a new, previously unexplored market that too in a foreign country is difficult. For example, if a clothing outlet in one country, opens a food chain in another country.