Best Notes on Foreign Direct Investment (FDI)

In this post, we are providing Notes on Foreign direct investment notes pdf – foreign direct investment definition -fdi introduction – types of fdi – foreign direct investment (fdi) has been a significant engine of globalization.

Foreign Direct Investment (FDI) is an investment made by a company or individual from one country into a business located in another country. It involves the ownership or control of the business by the foreign investor, which can take the form of either a partial or complete acquisition of an existing business or the establishment of a new business in a foreign country.

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Benefits of FDI

Foreign Direct Investment (FDI) can bring several benefits to both the host country and the foreign investor. Here are some of the key benefits of FDI:

  1. Increased capital inflows: FDI brings in new capital to the host country, which can be used to finance investments in new technology, infrastructure, and other essential services.
  2. Job creation: FDI can create new job opportunities in the host country, which can help to reduce unemployment rates and improve living standards.
  3. Technology transfer: Foreign investors often bring with them new technology, expertise, and management practices, which can help to improve productivity and competitiveness in the host country.
  4. Improved exports: FDI can provide access to new markets and distribution networks, which can help to increase exports and expand the host country’s global reach.
  5. Improved balance of payments: FDI can help to improve a country’s balance of payments by increasing exports and reducing the need for foreign borrowing.

Types of Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) is the investment made by a foreign company in the economy of another country. There are different types of FDI, including:

  1. Greenfield Investment: This type of FDI involves the establishment of a new business in the host country by a foreign company. The foreign company invests in building new factories, offices, and other infrastructure to support the new business.
  2. Merger and Acquisition (M&A): This type of FDI involves the acquisition of an existing business in the host country by a foreign company. M&A can be either horizontal (acquiring a competitor), vertical (acquiring a supplier or distributor), or conglomerate (acquiring a business that is unrelated to the foreign company’s existing businesses).
  3. Joint Venture: In this type of FDI, a foreign company partners with a local company in the host country to establish a new business. Both companies contribute to the business, and profits and losses are shared between them.
  4. Strategic Alliance: This type of FDI is similar to a joint venture but does not involve the creation of a new business. Instead, the foreign company partners with a local company to share resources and capabilities to achieve a common goal.
  5. Franchise: This type of FDI involves the licensing of the foreign company’s brand, products, and services to a local company in the host country. The local company operates under the foreign company’s brand and pays royalties for the right to use the brand and products.

Foreign direct investment (fdi) has been a significant engine of globalization

Foreign Direct Investment (FDI) has been a significant engine of globalization, as it allows companies to expand their businesses beyond their home countries and gain access to new markets, resources, and technologies. Here are some ways in which FDI has contributed to globalization:

  1. Cross-border investments: FDI has allowed companies to invest in other countries and establish subsidiaries, joint ventures, or strategic alliances with local companies. This has facilitated cross-border investments and has enabled companies to reach new customers and markets.
  2. Technology transfer: FDI has facilitated the transfer of technology and knowledge across borders. Companies investing in foreign countries can bring their advanced technology and expertise to the host country, which can help boost the local economy and promote innovation.
  3. Employment opportunities: FDI has created new employment opportunities in host countries by bringing in new investments, expertise, and technology. This has helped to reduce poverty and improve the standard of living for people in the host countries.
  4. Increased competition: FDI has increased competition in host countries, which has helped to improve the efficiency and productivity of local firms. This has also resulted in lower prices and better quality products for consumers.
  5. Economic growth: FDI has contributed to economic growth in host countries by increasing investments, generating employment, and creating new business opportunities. This has helped to stimulate the economy, increase the tax revenue of host countries, and improve the overall standard of living.

FDI Policy of India

India’s Foreign Direct Investment (FDI) policy is a set of regulations and guidelines that govern the entry of foreign investors into the Indian market. The FDI policy is formulated and implemented by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry. Indias FDI policy is aimed at attracting foreign investment in key sectors of the economy while also ensuring that national interests are protected. The policy is periodically reviewed and revised to reflect changes in the economic and political environment, as well as to address emerging challenges and opportunities.

FDI comes into India through two routes:

Automatic Route is a term used in the context of foreign direct investment (FDI) in India. It refers to the process by which foreign companies or individuals can invest in India without requiring prior approval from the Indian government or the Reserve Bank of India (RBI). Under the Automatic Route, foreign investors can invest up to a certain percentage of equity in an Indian company, depending on the industry sector, without any prior approval.

Government Route refers to the process by which foreign companies or individuals can invest in India, but the investment requires prior approval from the Indian government or the Reserve Bank of India (RBI). Under the Government Route, foreign investors are required to seek approval from the Foreign Investment Promotion Board (FIPB) for their proposed investment. The FIPB is an inter-ministerial body that reviews and approves foreign investment proposals on a case-by-case basis. The FIPB also recommends proposals that require Cabinet Committee on Economic Affairs (CCEA) approval.

Foreign Investment Promotion Board (FIPB)

The Foreign Investment Promotion Board (FIPB) was an inter-ministerial body in India that was responsible for reviewing and approving foreign direct investment (FDI) proposals that required government approval under the Government Route. The FIPB was established in 1991 as part of the liberalization of the Indian economy and was responsible for promoting and facilitating FDI in India. It was chaired by the Secretary of the Department of Economic Affairs and had representatives from various ministries and departments, including the Ministry of External Affairs, Ministry of Commerce and Industry, and Ministry of Home Affairs.

The FIPB was responsible for evaluating FDI proposals and making recommendations to the government on whether the proposals were in line with the countrys economic and strategic interests. The FIPB also ensured that FDI proposals complied with the relevant laws, regulations, and guidelines related to FDI.

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Foreign direct investment notes pdf

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FAQs on Foreign Direct Investment (FDI)

What is Foreign Direct Investment?

Foreign Direct Investment refers to the investment made by a foreign entity, such as a company or an individual, in a business enterprise located in another country.

What is the full form of FIPB?

The full form of FIPB is Foreign Investment Promotion Board.

What is the full form of FDI?

The full form of FDI is Foreign Direct Investment.

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Last updated: August 14, 2023 Updated on 10:12 AM