One of the largest democracies in the world, India is a land of ‘golden opportunities’ as Prime Minister Narendra Modi says. With a wide middle class and by extension a huge purchasing power, India is inching its way closer to development and prosper.
Today, the country is one of the most attractive destinations for foreign direct investments.
Foreign direct investment or FDI is a type of investment that is characterized by controlling ownership where an investor invests into a business that is based in another country. The main difference between foreign direct investment and foreign portfolio investment is the notion of ‘lasting control’ that comes with some control over business decisions.
A foreign investor, when investing via FDI gets a minimum of 10 per cent voting rights.
Overseas investors can penetrate the Indian market in many ways—through mergers and acquisitions, obtaining voting stocks in the company where the investment is being made, via joint ventures etc.
FDI is a critical driver of economic growth but it does more than that. FDI not only brings in funds but also new jobs, new tech, technological know-how, managerial expertise, and improved infrastructure into the country.
More and more investors are willing to invest in India due to a plethora of reasons:
- Overseas investors get tax incentives and subsidized rates
- They get preferential tariffs
- They get to tap into a new market with willing buyers
- India offers relatively cheaper labour costs
- They also get cheaper wages
- FDI in India allows market diversification
After the liberalization of the economy in 1991, India opened its market to foreign investors. Over the years the government has taken several reforms in foreign direct investment norms in order to encourage more overseas investor to invest in the country.