Foreign direct investment (FDI) or foreign investment refers to long term participation by country A into

country B. It usually involves participation in management, joint-venture, transfer of technology and

expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct
investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment",
which is the cumulative number for a given period. Direct investment excludes investment through
purchase of shares

FDI is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing
foreign investment can be used as one measure of growing economic globalization.

the largest flows of foreign investment occur between the industrialized countries (North America,
Western Europe and Japan). But flows to non-industrialized countries are increasing sharply

Types
A foreign direct investor may be classified in any sector of the economy and could be any one of
the following:[citation needed]

 an individual;
 a group of related individuals;
 an incorporated or unincorporated entity;
 a public company or private company;
 a group of related enterprises;
 a government body;
 an estate (law), trust or other societal organisation; or

Methods
The foreign direct investor may acquire voting power of an enterprise in an economy through
any of the following methods:

 by incorporating a wholly owned subsidiary or company

 by acquiring shares in an associated enterprise
 through a merger or an acquisition of an unrelated enterprise
 participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:[citation needed]

 low corporate tax and income tax rates

 tax holidays

 other types of tax concessions

  preferential tariffs

 special economic zones

 EPZ - Export Processing Zones

 Bonded Warehouses

 Maquiladoras

 investment financial subsidies

 soft loan or loan guarantees

 free land or land subsidies

 relocation & expatriation subsidies

 job training & employment subsidies

 infrastructure subsidies

 R&D support

 derogation from regulations (usually for very large projects)

 Foreign direct investment in India

A recent UNCTAD survey projected India as the second most important FDI destination (after China) for
transnational corporations during 2010-2012. As per the data, the sectors which attracted higher inflows
were services, telecommunication, construction activities and computer software and hardware.
Mauritius, Singapore, the US and the UK were among the leading sources of FDI. FDI for 2009-10 at USD
25.88 billion was lower by five per cent from USD 27.33 billion in the previous fiscal. Foreign direct
investment in August dipped by about 60 per cent to USD 1.33 billion, the lowest in 2010 fiscal, industry
department data released showed.

Foreign Direct Investment in India

FDI in India includes, FDI inflows as well as FDI outflow from India. Also FDI foreign direct investment
and FII foreign institutional investors are a separate case study while preparing a report on FDI and
economic growth in India. FDI and FII in India have registered growth in terms of both FDI flows in India
and outflow from India. The FDI statistics and data are evident of the emergence of India as both a
potential investment market and investing country.

FDI Policy in India

The Foreign direct investment scheme and strategy depends on the respective FDI norms and policies in
India. The FDI policy of India has imposed certain foreign direct investment regulations as per the FDI
theory of the Government of India (GoI). These include FDI limits in India for example:

o Foreign direct investment in India in infrastructure development projects excluding arms and
ammunitions, atomic energy sector, railways system , extraction of coal and lignite and mining
industry is allowed upto 100% equity participation with the capping amount as Rs. 1500 crores.
o FDI figures in equity contribution in the finance sector cannot exceed more than 40% in banking
services including credit card operations and in insurance sector only in joint ventures with local
insurance companies.
o FDI limit of maximum 49% in telecom industry especially in the GSM services

FDI Advantages and Disadvantages

The FDI norms in real estate sector as well as in the retail sector are also predetermined by the GoI after
a careful study of the foreign direct investment pros & cons. The foreign direct investment advantages
lay in the fact that equity participation form foreign investors brings larger infrastructure base for the
project but the FDI disadvantages of losing the ownership rights to a foreign company makes it a
cautious decision.

The FDI theories listing the FDI disadvantages include the increased liquidity and consequent inflation
due to excessive FDI inflow in India. In order to absorb the FDI entering the Indian economy, the rupee is
being pressurized. However the FDI benefits include better efficiency in funds management in India and
thus improvisations in the quality standards.

The FDI policy 2007 ascertains regulations on the FDI stocks and this may reduce the foreign direct
investment confidence as closing the doors of industrial relations with foreign investors with only
hamper the FDI and economic growth in India coordination. FDI and GDP in India working together and
brining the reforms to the economics in India.

Foreign Portfolio Investment in India

Another form of foreign investment besides FDI is FPI or foreign portfolio investment that is a more
easily traded form of foreign investment and less permanent. In FPI investment is made through stocks
and bonds in a foreign enterprise without long-term financial relationship plans.

FDI Trends in India

Steps have been taken by the government to impart technical FDI education so as to improvise the FDI
database of the country. FDI and trade go hand in hand as both works in a symbiotic situation. FDI has
also created more employment opportunities as FDI trends have increased the basic infrastructure of
any organization thus demanding growth in terms of organizational structure as well. The foreign direct
investment news in India shows the FDI notations being adopted by India, the foreign direct investment
strategies, and the FDI guidelines regulating the inflow of foreign funds in India

Advantages

Foreign Direct Investment in India is allowed through four basic routes namely, financial collaborations,
technical collaborations and joint ventures, capital markets via Euro issues, and private placements or
preferential allotments.
FDI inflow helps the developing countries to develop a transparent, broad, and effective policy
environment for investment issues as well as, builds human and institutional capacities to execute the
same.

Benefits of Foreign Direct Investment-

Attracting foreign direct investment has become an integral part of the economic development
strategies for India. FDI ensures a huge amount of domestic capital, production level, and employment
opportunities in the developing countries, which is a major step towards the economic growth of the
country. FDI has been a booming factor that has bolstered the economic life of India, but on the other
hand it is also being blamed for ousting domestic inflows. FDI is also claimed to have lowered few
regulatory standards in terms of investment patterns. The effects of FDI are by and large transformative.
The incorporation of a range of well-composed and relevant policies will boost up the profit ratio from
Foreign Direct Investment higher. Some of the biggest advantages of FDI enjoyed by India have been
listed as under:

Economic growth- This is one of the major sectors, which is enormously benefited from foreign direct
investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life
of country.

Trade- Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of
goods and services in India both in terms of import and export production. Products of superior quality
are manufactured by various industries in India due to greater amount of FDI inflows in the country.

Employment and skill levels- FDI has also ensured a number of employment opportunities by aiding the
setting up of industrial units in various corners of India.

Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing of knowledge
from India especially in the Information Technology sector. It helps in developing the know-how process
in India in terms of enhancing the technological advancement in India.

Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in the
Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits
gained by the foreign firms through these joint ventures is spent on the Indian market.

(Amount US$ million)

[Link]. Financial Year Total FDI flows into India

1 05-06 8,961
2 06-07 22,826
3 07-08 34,835
4 08-09* 35,180
5 09-10* 37,182
6 10-11 (up to September, 37,182
2010)
 *Provisional

i) Credit Rating and Information Services of India Limited

(CRISIL).
ii) Investment Information and Credit Rating Agency of India
Limited (ICRA) .
iii) Credit Analysis and Research Limited (CARE).
I

iv) Duff and Phelps Credit Rating of India (Pvt.) Ltd.