FOREIGN DIRECT INVESTMENT IN INDIA

FOREIGN DIRECT INVESTMENT IN INDIA

INTRODUCTION

FDI is the mechanism by which residence of one country's acquires ownership of assets to control the company's production and other operations in another country (host country).

The host country receives valuable investment and the host country gets cheaper access to the product through FDI    

Growing the local economy by international investment is a significant factor. Until investing, the company should do good market research.

REQUIREMENT TO INVEST IN FOREIGN DIRECT INVESTMENT

• A firm would have to keep itself up to date with global industry developments as it is the minimum basic requirement. It is important to be aware, from a strategic viewpoint, of the entrants entering the international market and how they do so.
• A business judgement also relies on different core considerations—

1. -Internal and other capital evaluation, competition, and market research.
2. -Expectations of industry

• It is also important to see how the domestic sector is now being impacted by globalisation.
• Until investing, seek the answer to these questions ...

1. -Did the company do enough domain market research?
2. -Is there a decision about what amount of resource use the investment would offer?
3. -have all the appropriate government departments decided, if applicable?

ROUTES FOR FOREIGN DIRECT INVESTMENT

1. Automatic route- No prior permission from anyone is needed on this route. An investor will invest according to his needs without any permission.

2. Approval route: government permission is required prior to investing under this route.

LIMIT FOR VARIOUS SECTOR FOR ROUTES FOR FDI

FOREIGN DIRECT INVESTMENT IN SMALL SCALE SECTOR UNITS

A small-scale enterprise accepts no more than 24 per cent of its paid-up capital from any manufacturing undertaking, whether international or domestic. Where the equity of another company (including foreign equity) reaches 24%, even though the investment in the unit's plant and equipment does not exceed Rs 10 million, the unit loses its small-scale status and needs an industrial licence to produce products reserved for the small-scale market.

REASON BEHIND INVEST IN FOREIGN DIRECT INVESTMENT

1. The cost of production of that product would be lower, In that country.

2. Foreign direct investments are also made to avoid transportation costs.

3. Through foreign direct investment, the product achieves an international image.

4. Foreign direct investment is also carried out for business expansion.

EFFECT OF INVEST IN FOREIGN DIRECT INVESTMENT

POSITIVE IMPACT TO HOST COUNTRY  -

1. For the host country, it brings an important production factor.

2. There is a transfer of technology by the FDI.

3. The development of human resources is possible through FDI.

4. Employment generation is possible through FDI. 

5. Improvement in the balance of payment through FDI.

POSITIVE IMPACT TO HOME COUNTRY-

1.  Increase in the home country's income.
2.  FDI assists for the employee's learning skills.
3.  good political relationship creation by FDI.
4.  There has been an increase in exports through FDI.

NEGATIVE IMPACT TO HOST COUNTRY  -

1.  For the host country, the lack of technology can be a challenge.
2.  Increase in the competition by FDI
3.  The scopes for conflict in the judgement.

NEGATIVE IMPACT TO HOME COUNTRY  -

1.  The exploitation of resources of the home country. 
2.  The outflow of a production factor by FDI.
3.  There is a small industry loss by FDI.

FREQUENTLY ASK QUESTION

Q1. In any sector, is 100 per cent FDI possible?

Ans.   Yes, in almost every sector, the Reserve Bank of India has permitted 100 % FDI.

Q2. Is FDI permitted without limitation in any industry?

Ans.  No, in certain industries, there is a limit on FDI, not even with permission.

Q3. Is there any enforcement needed to be done by the FDI receiving company?

Ans. Yes, for reporting FDI in India, the company is expected to file Form FCGPR.

CS Akshay Gupta is a diligent and innovative qualified Company Secretary, striving in matters related to Corporate Law. Akshay takes a deep interest in corporate, NBFC and FDI matters and his specialization includes corporate Compliance, FDI Compliances, and NBFC Registration. As a Company Secretary, Akshay is passionate about matters relating to corporate funding, NBFC, and its compliances.

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