Financial Awareness- Foreign Direct Investment -IBPS -PO

Financial Awareness- Foreign Direct Investment 

IBPS -PO

Foreign Direct Investment (FDI)
Foreign Direct Investment is a direct investment that involves the injection of foreign funds into production or business in a country by an individual or company of another country.

Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment is a direct investment but investment in only financial assets such as stocks, bonds etc. of a company located in another country. In contrast to FDI, a portfolio investment is an investment made by an investor who is not involved in the management and day-to-day business of a company.

Benefits of FDI:

(a) Improves forex position of the country

(b) Employment generation and increase in production

(c) Help in capital formation by bringing fresh capital

(d) Helps in transfer of new technologies, management skills, intellectual property

(e) Increases competition within the local market and this brings higher efficiencies

(f) Helps in increasing exports, Increases tax revenue



FDI in INDIA
A foreign company planning to set up business operations in India may:
Incorporate a company under the Companies Act, 1956, as a Joint Venture or a Wholly Owned Subsidiary.
Set up a Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000. 

FDI

FPI


Investment in productive assets (whose value increase over time) like plant and machinery for a business

Investment in financial assets like stocks, bonds, mutual funds, etc.


Investment gives investors ownership right as well as the management right

Investment gives investors only ownership right and not the management right


Engage in the decision making of a firm

Not involved in decision making


Investors enter a country with long-term approach

Investors can plan for long but often have short-term plans


So investors cannot depart from the country easily

Investors can easily depart from the country


Investment is greater than 10%

Investment is less than 10%




The routes under which foreign investment can be made:
Automatic Route: Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India.
Government Route: Foreign investment in activities not covered under the automatic route requires prior approval of the Government which is considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance.



Foreign investment is prohibited in the following sectors:



1. Lottery Business including Government / private lottery, online lotteries, etc.

2. Gambling and Betting including casinos etc.

3. Chit funds

4. Real Estate Business or Construction of Farm Houses

5. Manufacturing of Cigars, cheroots and tobacco substitutes.

6. Atomic energy and Railway operations.