India registers highest-ever FDI inflow

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    • India has registered the highest ever annual Foreign Direct Investment (FDI) inflow of 81.97 billion dollars in 2020-21. 

    Key Points

    • FDI inflows in the last seven financial years are over 440 billion dollars, which is nearly 58 per cent of the total FDI inflow in the last 21 financial years.
    • The top five countries from where FDI Equity Inflows were received during 2014 to 2021 are Singapore, Mauritius, the USA, Netherlands and Japan.
    • The computer software and hardware sector attracted the largest share of FDI inflows, followed by Service, Trading and Telecommunications. 

    Foreign Direct Investment (FDI)

    • It refers to the conditions when a company or investor takes ownership and controls operation in a business entity in another country
    • With FDI, foreign companies are directly involved with day-to-day operations in the other country. 
      • This means they aren’t just bringing money with them, but also knowledge, skills and technology.
    • It is an important non-debt monetary source for India’s economic development. 
      • Economic liberalisation started in India in the wake of the 1991 crisis and since then, FDI has steadily increased in the country.

    FDI Route

    • Foreign investment into India falls under one of two FDI routes:
      • Government Route: For investment in business sectors requiring prior approval from the Foreign Investment Promotion Board (FIPB).
      • Automatic Route: For investment in business sectors that do not require prior approval from the government.

    Categories

    • Foreign direct investments are commonly categorized as being horizontal, vertical or conglomerate. 
      • Horizontal: A horizontal direct investment refers to the investor establishing the same type of business operation in a foreign country as it operates in its home country.
      • Vertical: A vertical investment is one in which different but related business activities from the investor’s main business are established or acquired in a foreign country, such as when a manufacturing company acquires an interest in a foreign company that supplies parts or raw materials required for the manufacturing company
      • Conglomerate: A conglomerate type of foreign direct investment is one where a company or individual makes foreign investment in a business that is unrelated to its existing business in its home country. 

    Difference between FPIs and  FDI

    • FDI is an investment made by a firm or individual in one country into business interests located in another country.
    • FPI instead refers to investments made in securities and other financial assets issued in another country.
    • Both methods of foreign investment are crucial to global trade and development, however, FDI is often considered the preferred mode and is less volatile.

    Source: AIR