Thursday 15 January 2015

Foreign Direct Investment

Foreign Direct Investment - FDI
Foreign Direct Investment is an investment made between two countries through companies or entities. Entities making direct investments typically have a compelling effect and control over the company into which the investment is made. Foreign Direct Investment acts as a source of capital; it has increased employment in our country. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies. Foreign Direct Investment has helped in raising capital, boosted economic attention, released the markets, increased competition and advanced technologies.
Foreign direct investments are different from indirect investments. Developing countries always need financial support in order to achieve stability in economy. Foreign Direct Investment is mostly observed in developing countries. Similarly, India being developing country is always ready to apprehend for foreign direct investment in a maneuver of becoming a developed economy. We all know that Indian economy is a flourishing and it holds highly strong position. Indian economy registers hike in figures of economy when globally there was a heavy financial meltdown. Due to this growth, investors of overseas are confident and interested to invest in India which is giving a boost to Foreign Direct Investment. An Indian company may receive Foreign Direct Investment under the two routes as given under:
i. Automatic Route
FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in specific sectors as specified in the FDI Policy, issued by the Government of India.
ii. Government Route
FDI in activities not covered under the automatic route requires approval of the Government which is considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs and Ministry of Finance.

India is the 3rd largest economy of the world in terms of purchasing power parity (PPP) and thus looks attractive to the world for FDI.   Even Government of India,  has been trying hard to do away with the FDI caps for majority of the sectors, but there are still critical areas like retailing and insurance where there is lot of opposition from local Indian companies.

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