Before moving on to outward foreign direct investment, let us define FDI in India or foreign direct investment. In its most generic definition, Foreign Direct Investment is an investment in one country by an entity based in another country. distinguishes it from foreign portfolio investment. Therefore, it is safe to say that FDI does not only bring in money but also skills, knowledge and technology; elements essential for the holistic development of a country. Merely putting money into the assets of another country does not constitute FDI. Foreign direct investment is characterized by direct control and lasting interest. The intent to actively participate in the day to day operations of the business is foreign direct investment.
Outward FDI occurs when a domestic firm expands its operations to a foreign country. This can happen through a merger, an acquisition, expansion, etc.
Outward FDI stock is the value of is the value of the resident investors’ equity in and net loans to enterprises in foreign economies.
Overseas direct investment can happen in three ways – vertical investment, horizontal investment, and conglomerate investment. They are defined below.
- Vertical Investment
Under vertical investment, a business that is differentiated to an extent is established in a foreign country.
- Horizontal Investment
Under this type of investment, an investor opens the same business in a foreign country.
- Conglomerate Investment
Under the conglomerate investment type, an investment is carried out even if the business is unrelated or different to its existing business.
After the economic liberalization from 1991, India has emerged as an attractive investment destination. Today, it is one the largest democracies in the world and offers tremendous opportunities for growth and investment. Foreign investors are willing to invest in India because of the easy foreign direct investment policies and special benefits like tax exemption. The wages in India are also relatively cheaper and the country has an abundant flow of workforce and a robust financial sector.
In the last fiscal year, India witnessed a dip in foreign direct investment equity inflows. Due to the 1 per cent decrease, the total FDI now stands at $44.4 billion. This dip seems to be a direct result of political uncertainty in the country, according to experts. However, recent reforms passed by the government suggesting changes in current foreign direct investment norms across different sectors like digital media, contract manufacturing, single and multi-brand retail may increase FDI equity inflows into the country.