Basics explained: What exactly is FDI?

India relaxed foreign direct investment (FDI) rules on Tuesday in a wide range of industries including telecoms, single brand retail and oil and gas in a bid to attract capital inflows, rein in the rupee slide and trigger economic growth. (Here are the highlights of the announcement.)

That brings us to a very basic question. What exactly is FDI? How is it different from the already existing foreign business models in the country. Why is FDI important and what are the threats it poses? We simplify the facts for you below.

What is Foreign Direct Investment or FDI?

Foreign direct investment is relevant when a company makes an investment by buying another company or diversifies business in a nation other than in which it is based. The investment made through FDI becomes a source of external finance which could strengthen the economy.

Which are India's top FDI destinations?(Click on the slideshow below)

Bangalore

Bangalore has become a global hub for service sector investment in IT, engineering and biotech. Bangalore’s Millennium IT Policy and the Millennium Biotech Policy, which offer a variety of ... more 

Bangalore

Bangalore has become a global hub for service sector investment in IT, engineering and biotech. Bangalore’s Millennium IT Policy and the Millennium Biotech Policy, which offer a variety of incentives, make it attractive for technology companies. Since 2007, the city has attracted 474 investment projects creating more than 110,140 jobs from FDI, mostly due to its educated workforce and high-quality infrastructure. (photo credit: ThinkStock) less 
1 / 5
YFIN
Tue 11 Sep, 2012 3:30 PM IST

How do companies benefit from FDI?

Some of the advantages for companies who choose to invest in other countries are tax exemptions, lower cost of working capital, access to foreign markets and expansion of business.

Slideshow: The major sectors currently attracting FDI for India

Infrastructure


The number of FDI projects in the Infrastructure sector grew by 90 percent in 2011 in India. The sector contributed 4 percent to the total number of FDI projects and 9 percent to the

... more 

Infrastructure


The number of FDI projects in the Infrastructure sector grew by 90 percent in 2011 in India. The sector contributed 4 percent to the total number of FDI projects and 9 percent to the total jobs created. Development in the country’s infrastructure is poised to accelerate as the Government of India plans to double its infrastructure spending from US$500 billion to US$1 trillion during FY2012–17.

less 
1 / 7
YFIN
Thu 13 Sep, 2012 3:30 PM IST

What is the difference between a franchise (eg: Dominos, Pizza Hut) and an FDI module?

Many companies have established their franchised business in India so how is the FDI module different?

In a franchising arrangement, the franchisor usually does not make any contribution to the business in terms of equity. According to Franchise India, the franchisors contribution is in terms of grant of rights for the use of their intellectual property and business method. The equity is contributed by the Indian franchisee and the economic interest of the franchisor is limited to the franchisee fees that he receives from the franchisee. Whereas an  FDI occurs when an investor, based in one country (the home country), acquires some asset in another country (the host country) with intent to manage the asset.

Slideshow: How FDI investors view India

Investors show strong confidence in India to maintain performance. In the longer run, only 11 percent of the respondents of the survey see India as being surpassed by competition from other dynamic ... more 
Investors show strong confidence in India to maintain performance. In the longer run, only 11 percent of the respondents of the survey see India as being surpassed by competition from other dynamic countries like Brazil, China, Germany, Korea, Russia, United Kingdom and United States. less 
1 / 8
YFIN
Mon 17 Sep, 2012 2:30 PM IST

Some arguments in favour of FDI:

  • FDI will generate employment in the country it invests
  • It could benefit farmers by eliminating middlemen
  • FDI gives consumers a wide variety of products to choose from at reasonable prices
  • It can improve food distribution systems
  • FDI can bring in better quality and standard products
  • FDI can increase the standard of living through its goods and services
  • It could raise the bar among other domestic companies in the same sector
  • It contributes to the health of the economy

    Slideshow: Jobs opportunities created by FDI in India

    Infrastructure sector

    Value of FDI (US$ million): $2,877.3 million FDI in 2010 and $3,110.8 million in 2011.

    No of jobs created by FDI in the sector: 18,347 in 2010 and 22,137 in 2011.

    ... more 

    Infrastructure sector

    Value of FDI (US$ million): $2,877.3 million FDI in 2010 and $3,110.8 million in 2011.

    No of jobs created by FDI in the sector: 18,347 in 2010 and 22,137 in 2011.

    less 
    1 / 7
    YFIN
    Mon 17 Sep, 2012 1:30 PM IST


    Some arguments against FDI:

    • Allowing foreign players could destroy the livelihoods of millions of small store owners
    • Market prices could be manipulated by foreign retail giants
    • Local jobs could be at threat since the foreign players could purchase many products from abroad
    • There is no established correlation between advent of FDI and improvement of a country’s infrastructure

      How are the stock markets reacting to India's latest FDI move?


      Click here to check the latest on the market reactions

      Explore Related Contents

      Latest News

      • Glencore ready for deals and dividends after profit boost
        Glencore ready for deals and dividends after profit boost

        Commodities trader and miner Glencore reported an 18 percent rise in full-year profit on Thursday, buoyed by a rebound in raw materials prices, and said it was well-placed financially for small acquisitions or a special dividend payout. Companies across the mining industry, which was pounded by the commodities market rout of 2015, have exceeded expectations after a recovery in the price of raw materials such as iron ore and coal last year. Glencore's 2016 earnings before interest, tax, …

      • BJP’s Win In Civic Polls A Mandate On Transparency: Devendra Fadnavis
        BJP’s Win In Civic Polls A Mandate On Transparency: Devendra Fadnavis

        BJP came a close second to the Shiv Sena bagging 80 seats in the 227-member BMC. …

      • U.S. labor, housing markets data underscore economy's stamina
        U.S. labor, housing markets data underscore economy's stamina

        The number of Americans filing for unemployment benefits rose slightly last week but the four-week average of such claims, considered a better gauge, fell to a 43-1/2-year low in a sign of a strengthening labor market. Other data on Thursday showed house prices increasing solidly in December amid strong demand for housing even as mortgage rates rose. The reports highlighted strength in the economy that could allow the Federal Reserve to raise interest rates in the near-term. …

      • Oil prices up but gains pared after 7th straight stock build
        Oil prices up but gains pared after 7th straight stock build

        Oil prices rose but gains were pared Thursday after U.S. government data showed a seventh straight build in crude stocks, suggesting high inventories could undermine OPEC's move to cut output. Benchmark ... …

      • Rasna Enters Packaged Food With Baked Snack
        Rasna Enters Packaged Food With Baked Snack

        Rasna launches baked snack under Vitos brand.  …

      • Barclays surprise capital boost triggers pension concerns
        Barclays surprise capital boost triggers pension concerns

        A surprise boost to Barclays' capital reserves failed to convince some analysts and investors on Thursday, with the British bank's shares falling nearly three percent as the market digested the figures, reversing earlier gains. Concerns over the sustainability of the capital level centred on the accounting treatment of Barclays' UK pension scheme, which moved from a 1.1 billion pound deficit to a 27 million pound ($34 million) surplus in the last quarter of 2016. Capital has been a concern …

      • Bharti Airtel to buy out Telenor India

        New Delhi/Mumbai, Feb 23 (IANS) India's largest telecom service provider Bharti Airtel on Thursday announced that it has inked a definitive agreement to acquire Telenor India. According to the telecom major, it has entered into a definitive agreement with Telenor South Asia Investments to acquire Telenor (India) Communications Private Limited. …

      DON'T MISS

      MARKET MOVERS

      • Most Actives
        Most Actives
        NamePriceChange% Chg
        14.78+0.81+5.80%
        JPASSOCIAT.BO
        18.10+0.40+2.26%
        SUZLON.BO
        119.65+7.20+6.40%
        IDEA.BO
        36.90+1.15+3.22%
        RCOM.BO
        71.30-1.30-1.79%
        SPICEJET.BO
      • Price % Gainers
        Price % Gainers
        NamePriceChange% Chg
        13.12+2.12+19.27%
        RKDL.BO
        18.90+2.80+17.39%
        BMAL.BO
        150.00+20.80+16.10%
        VIAANINDUS.BO
        88.25+8.80+11.08%
        ADLABS.BO
        18.75+1.70+9.97%
        INDOKEM.BO
      • Price % Losers
        Price % Losers
        NamePriceChange% Chg
        51.80-7.40-12.50%
        JIYAECO.BO
        11.02-1.04-8.62%
        STARLIT.BO
        15.00-1.30-7.98%
        TITAANIUM.BO
        23.95-2.05-7.88%
        TAIIND.BO
        342.30-27.05-7.32%
        SHRISTI.BO

      QUOTES

       
      Recent Quotes
      Symbol Price Change % Chg 
      Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
      You need to enable your browser cookies to view your most recent quotes.
       
      Sign-in to view quotes in your portfolios.

      Yahoo Cricket