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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
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Source: AIR
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