- FDI is the process whereby the residence of one country acquires the ownership of assets to control the production and other activities of the firm in another country (host country).
- By FDI host country get valuable investment and the host country get cheaper access to the product.
- It is an important factor to grow the local market by foreign investment. The company should do good market research before investing.
Basic Requirement – Foreign Direct Investment in India
- The minimum requirement, a firm will have to keep itself abreast of global trends in the industry. From a competitive perspective, it is important to be aware of the competitors are entering into the foreign market and how do they do that.
- A business decision also depends upon various key factors-
- Assessment of internal and other resources, competitiveness, and market analysis.
- Market expectations
- It is also important to see how globalization is currently affecting the domestic industry.
- Seek the answer to these questions before investing-
- has the company done enough market research in domains?
- is there a judgment in place of what level of resource utilization the investment will offer?
- if applicable, have all the relevant government agencies and concurred?
Related Information : significant-changes-introduced-in-foreign-director-investment-policy
Route of Foreign Direct Investment in India
- Automatic route – In this route, this is no approval from anybody is required. An investor can invest without any approval according to his need.
- Approval route – approval of government is required before investing by this route.
Foreign Direct Investment in India in Small scale Sector Units
- Not more than 24 percent in its paid-up capital from any industrial undertaking, whether it is foreign or domestic is accepted by a small-scale industry.
- If the equity from another company (including foreign equity) exceeds 24 percent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses at its small-scale status and requires an industrial license to manufacture items reserved for small-scale sector.
List of limit for Different sector for Route of Foreign Direct Investment in India
|Air Travel Services
1.Non-scheduled and other civil aviation sector services
2. Scheduled services for air transport, Regional services for air transport
Up to 49%
1.Publication / Printing of Science and Professional Magazines / Specialized Journals / Reviews and International Newspaper Facsimile Edition
2. Publishing foreign magazines dealing with news and current affairs in newspapers, periodicals and Indian editions
|Some Civil Aviation services
1. Maintenance and Repair Organizations, Flying Training Institutions, Technical Training Institutions, etc.
2. subject to sectoral legislation and security clearance for ground handling facilities
|Airports (Greenfield & Brownfield)||100%|
Up to 74%
|Components of Automobile||100%|
|Mining and mineral isolation of minerals and ores containing titanium, its addition of value and integrated operations||100%|
Up to 74%
|Exploration and extraction of metal and non-metal minerals||100%|
|Carriage Services Broadcasting||100%|
|Content Broadcasting systems||49%|
|Financial Items(Capital Goods)||100%|
Up to 74%
|Lignite & Coal||100%|
|Development of Hospitals||100%|
|Defense||Up to 74%||Above 74%|
|Duty Free Shops||100%|
|Processing of Food||100%|
|Retail Trading for food products||100%|
|(Manufacturing) Crystals & Jewellery||100%|
|BPM and IT||100%|
|Telecom service||Up to49%||Above 49%|
|Garments & Textiles||100%|
|Accommodation & Tourism||100%|
|Retail Trading for Single Brand Product||100%|
|Energy from renewable sources||100%|
|Expressways & Roads||100%|
|Natural Gas & Petroleum||100%|
|Petroleum Refining(by PSUs)||49%|
|Wholesale Cash & Carry Trading / Wholesale Trading (including MSEs sourcing)||100%|
|Shipping and Terminals||100%|
|Broadcast information services (Up-linking of TV Channels from Non-‘News & Current Affairs/ Down-linking of TV Channels)||100%|
|Development of construction: townships, houses, built-up infrastructure||100%|
|Multi Brand Trading for Retail||51%|
Sectoral Limited under Foreign Direct Investment in India
Liberalization of FDI in India (Industries permitted)
FDI is allowed in certain jurisdictions with a ceiling on the overall allowable foreign holdings. Information of the same sectors in which FDI is subject to sector-specific caps are available at the various link:
Strictly prohibited Industries for Foreign Direct Investment in India
New policy forbids Foreign Direct Investment in India in the following categories:
- Gaming and Betting
- Lottery sector (including government / private lottery, online lottery, etc.)
- Activities/sectors not available to private sector investment (e.g. nuclear energy/railways)
- Agricultural production (excluding floriculture, horticulture, apiculture, and cultivation of vegetables and mushrooms under controlled circumstances, growth and processing of seeds and planting materials, animal husbandry including dog breeding, wine-growing and aquaculture under controlled conditions and related services to the agro-and allied sectors)
- Trade-in retail (expected retailing of single-brand products)
- Chit fund Company
- Nidhi Company
- Real estate company or farmhouse construction
- Trade-in transferable development rights (TDRs)
- Production and Manufacture of tobacco, cigars, cheroots, cigarillos, cigarettes, and other tobacco substitutes
REASON FOR FOREIGN INVESTMENT DECISION
- The cost of production of that product will be less in that country.
- For avoiding transportation costs the foreign direct investment is also made.
- The product gets the international image by foreign direct investment.
- For business expansion, foreign direct investment is also made.
IMPACT OF FOREIGN INVESTMENT DECISION
POSITIVE IMPACT TO HOST COUNTRY –
- It brings an important factor of production for the host country.
- There is a transfer of technology by the FDI.
- Human resource development is possible by
- Employment generation is possible by FDI.
- Improvement in the balance of payment by FDI.
POSITIVE IMPACT TO HOME COUNTRY–
- Increase in income of a home country.
- FDI helps in the learning skills of the employees.
- Good establishment of political relationship by FDI.
- There is an increase in export by FDI.
NEGATIVE IMPACT TO HOST COUNTRY –
- Lack of technology can be an issue for the host country.
- Increase in the competition by FDI
- Possibility of conflict in the decision.
NEGATIVE IMPACT TO HOME COUNTRY –
- The exploitation of resources of the home country.
- The outflow of a factor of production by FDI.
- There is a loss of small industry by FDI.
Read Also : FDI reporting through single master
Q1. Is 100% FDI is possible in any sector?
Yes, RBI has allowed 100% FDI in almost every sector.
Q2. Is FDI is allowed in any industry without restriction?
No, there is a restriction for FDI in some sectors not even with approval.
Q3. Is there any compliance required to be made by Company receiving FDI?
Yes, the company is required to file Form FCGPR for reporting FDI in India.
Q 4 Can anyone bring FDI under the Approval route without prior approval of the concerned authority?
No, the FDI must be brought into India after obtaining approval from the concerned authority.
Related Information: Fema Compliance for FDI in Equity Share in India
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