Foreign Direct Investment
Introduction: - Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, other long-term capital, and short-term capital as shown in the balance of payments. 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 one example of international factor movement.
History: - FDI is a measure of the ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as the measure of growing economic globalization. The figure below shows net inflows of foreign direct investment in the United States. 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.
§ 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 social institution; or
§ any combination of the above.
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
§ low corporate tax and income tax rates
§ other types of tax concessions
§ preferential tariffs
§ EPZ – Export Processing Zones
§ 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:
Starting from a baseline of less than $1 billion in 1990, 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 in 2010 was $24.2 billion, a significant decrease from both 2008 and 2009. Foreign direct investment in August 2010 dipped by about 60% to aprox. $34 billion, the lowest in 2010 fiscal, industry department data released showed. In the first two months of 2010–11 fiscal, FDI inflow into India was at an all-time high of $7.78 billion up 77% from $4.4 billion during the corresponding period in the previous year. The world’s largest retailer Wal Mart has termed India’s decision to allow 51% FDI in multi-brand retail as a “first important step” and said it will study the finer details of the new policy to determine the impact on its ability to do business in India. However this decision of the government is currently under suspension due to opposition from multiple political quarters.
