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?
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
100%
Up to 49%
Above 49%
Print media
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
100%
26%
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
100%
100%
Airports (Greenfield & Brownfield)
100%
Biotechnology
1. Brownfield
2. Greenfield
Up to 74%
100%
Above 74%
Motorists(Automobile)
100%
Components of Automobile
100%
Mining and mineral isolation of minerals and ores containing titanium, its addition of value and integrated operations
100%
Pharmaceuticals
1. Brownfield
2. Greenfield
Up to 74%
100%
Above 74%
Exploration and extraction of metal and non-metal minerals
Broadcast information services (Up-linking of TV Channels from Non-‘News & Current Affairs/ Down-linking of TV Channels)
100%
Electronic systems
100%
Development of construction: townships, houses, built-up infrastructure
100%
Medical Equipment
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.
Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders.
Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields.
We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.
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