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
Yahoo Finance India
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
Yahoo Finance India
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
Yahoo Finance India
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
    Yahoo Finance India
    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

      Latest News

      • Lufthansa suspends Caracas flights as Venezuelan economy struggles
        Lufthansa suspends Caracas flights as Venezuelan economy struggles

        German airline Deutsche Lufthansa AG (LHAG.DE) said on Saturday it will temporarily suspend flights to Venezuela as of next month due to economic difficulties in the South American nation and problems converting local currency into dollars. "We deeply regret that for these reasons, we will be forced to suspend our service between Caracas and Frankfurt as of June 18," the company wrote in a statement, noting that demand for international flights to Caracas dropped in 2015 and the first quarter …

      • Sun Pharma gets U.S. subpoena over generic drugs pricing
        Sun Pharma gets U.S. subpoena over generic drugs pricing

        The U.S. Department of Justice (DoJ) has subpoenaed India's largest drugmaker Sun Pharmaceutical Industries Ltd seeking information about the pricing and marketing of the generic drugs it sells in the United States, the company said on Saturday. The DoJ's antitrust division has also asked Sun Pharma's U.S. unit for documents related to employee and corporate records and communications with competitors. The subpoena comes amid a wider probe by U.S. regulators into steep increases in the prices …

      • Yellen says Fed rate hike likely appropriate in coming months

        The Federal Reserve should raise interest rates "in the coming months" if the economy picks up as expected and jobs continue to be generated, U.S. central bank chief Janet Yellen said on Friday, bolstering the case for a rate increase in June or July. "It's appropriate ... for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate," Yellen said during an appearance at Harvard University. Although …

      • Hindalco Industries's Q4 net profit up by over 123 percent

        Mumbai, May 28 (IANS) Aluminium manufacturer Hindalco Industries on Saturday reported a 123.36 percent increase in its standalone net profit for the fourth quarter of 2015-16. The company's Q4 net profit ... …

      • Global cues, results, rains catapult equity markets

        Mumbai, May 28 (IANS) Positive global cues, combined with a fresh influx of foreign funds and healthy fourth quarter results, catapulted the Indian equity markets to their highest weekly close in the last three months. Further, expectations of above-average monsoon rains, a rise in global crude oil and high-grade copper prices unleashed a relentless buying spree. Consequently, the wider 51-scrip Nifty of the National Stock Exchange (NSE) rose by 406.95 points or 5.25 percent to 8,156.65 …

      • India's forex reserves at $360 bn

        Chennai, May 28 (IANS) India's foreign exchange reserves went down to $360.90 billion as on May 20, the Reserve Bank of India (RBI) said. According to the foreign exchange data released by RBI, the foreign ... …

      • Wall St Weekahead: Fed reaction to data barrage is focus for stocks

        Data on inflation and employment, two of the economic indicators most important to a "data-dependent" U.S. Federal Reserve are expected next week. While Fed policymakers will be looking at those numbers as they decide whether to raise key interest rates as soon as June, traders will read through them to try and get ahead of the Fed decision. The Fed has remained constant in using economic data to decide whether to raise the Fed funds rate. …

      • Fed reaction to data barrage is focus for stocks

        Data on inflation and employment, two of the economic indicators most important to a "data-dependent" U.S. Federal Reserve are expected next week. While Fed policymakers will be looking at those numbers as they decide whether to raise key interest rates as soon as June, traders will read through them to try and get ahead of the Fed decision. The Fed has remained constant in using economic data to decide whether to raise the Fed funds rate. …

      DON'T MISS

      • The Rs 80,000 crore milk business is on a tear

        If you thought that all the action in business was concentrated around the e-commerce sector, you could not be more wrong. The unlikely category of milk and dairy products has been seeing some of the most ... …

      • Charged up

        Reliance Jio's battle with other cellular operators over spectrum usage charges is set to escalate. …

      • Cracking the Code

        HackerRank is helping companies recruit coding champions through online tests. …

      • Poor Prediction

        A Niti Aayog presentation says poverty in India could be wiped out by 2032. Is it possible? …

      • Missing in Action

        Villages adopted by Gandhis make little progress. …

      • The VillageEconomy

        Inside: Model villages 68 / How India failed its poor 76 …

      • Hardly Adarsh

        Saansad Adarsh Gram Yojana, PM's pet project, has the potential to kick-start the rural economy, but is going nowhere if we go by the results so far. …

      MARKET MOVERS

      • Most Actives
        Most Actives
        NamePriceChange% Chg
        195.55+11.80+6.42%
        SBIN.BO
        16.20+0.85+5.54%
        SUZLON.BO
        66.50-1.45-2.13%
        SPICEJET.BO
        103.35+4.55+4.61%
        IBREALEST.BO
        49.00+1.35+2.83%
        RCOM.BO
      • Price % Gainers
        Price % Gainers
        NamePriceChange% Chg
        100.90+16.75+19.90%
        CHEMFALKAL.BO
        72.90+12.10+19.90%
        SAMPRE.BO
        99.50+16.50+19.88%
        ICNX100.BO
        36.85+5.60+17.92%
        BRAHMINFRA.BO
        129.15+19.15+17.41%
        TEJNAKSH.BO
      • Price % Losers
        Price % Losers
        NamePriceChange% Chg
        8.38-1.86-18.16%
        LAHOTIOV.BO
        629.15-124.65-16.54%
        LOYALTEX.BO
        78.95-13.20-14.32%
        AMARJOTHI.BO
        13.90-2.10-13.13%
        SRSFIN.BO
        724.80-103.05-12.45%
        NOVARTIND.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