Foreign direct investment or FDI is an important factor that facilitates economic development of a country. It is a type of investment from an entity residing outside the country where the investment is to be made. It is characterized by a controlling ownership or by extension, a lasting interest in the business. This controlling ownership is given to the foreign investor by the means of assigning at least 10 per cent voting rights in the company.
Foreign direct investment is distinguished by foreign portfolio investment by the notion if lasting interest.
Foreign direct equity inflows are critical drivers of economic growth and are generally preferred over other means of external finance because FDI inflows do not create debt, are non-volatile and their returns depend on the performance of the projects financed by the foreign investors. As a result, more and more Indian business are looking to expand their business through FDI rather than raising capital from within the country. FDI is a more lucrative option for businesses in India.
However, this interest is not one sided, foreign investors across the globe are also readily available and interested to invest in Indian business. One major reason for this can be attributed to India’s dynamic economy and relatively cheaper wages.
India has a wide middle-class section and therefore, a greater consumer base with a good purchasing power. The country has the third largest Purchasing Power Parity which offers great opportunities to foreign investors who are looking to tap into the Indian market.
The Indian economy also is diverse with sectors from agriculture to IT, thus giving plenty of investment opportunities. On top of these advantages, the government of India is very accommodating when it comes to the nation’s growth. New economic reforms and amendments to foreign investment policies have alleviated the FDI trajectory. To make India more investor-friendly, the government has undertaken reforms and simplified investing conditions to encourage foreign investment in different sectors.