FDI – Foreign Direct Investment.
FDI in simple terms is a company from a country investing into the business of another country.
Example, Wal-Mart trying to invest into the retail markets in India. FDI can be done as investing into production, joint ventures, acquisitions or expanding the existing operations into another country.
Why India seeks FDI?
- Capital need – as the money in India is inadequate for a good economic growth
- Especially country like India when transforming from developing to developed nation!!
- FDI bring Technology, skills and business expertise
- Employment increase
- Indirectly helps increasing exports
Why the opposition?
- Domestic companies loose the markets
- Small enterprise face tough competition in terms of quality, knowledge, skill and technical expertise.
- Eventually, domestic companies may surrender their ownership to these companies.
Automatic route and Government route
In FDI policies, a company interested for FDI has to take prior Government approval if legislated as Government route. And no prior approval is required is automatic route.
There will be a percentage of FDI that a company can invest on –
Some of them for example are:
- FDI cap in telecom – 100% (automatic route upto 49% and beyond via govt. route)
- Insurance sector – 49% – Automatic route
- Single brand retail – 100% 49% through automatic, 49-100% through government
- Petroleum 49% in – automatic route, from earlier approval route