FDI IN INDIA

FDI is a hot topic, with the current government increasing the caps on many sectors; it is something that will definitely shape the economy in the months to come – also having far reaching consequences with the Make in India vision of PM Modi.

So what is FDI? How does it actually work? And some latest news!

1. What is FDI – Foreign Direct Investment?

Foreign Direct Investment is when persons/companies who/which are non-Indian, invest in Indian companies.

Thus, through FDI, the investors become the shareholders in Indian companies and usually have stake that will give them controlling power of the company. 

FDI can be done in many ways – popular of which are through acquiring of shares and merger and acquisition.

Also important to know is that there are two ‘routes’ of FDI, namely, Automatic Route(does not require RBI or CG approval) and the Government Route (requires the approvals for those not covered under the automatic route).

2. Why would anyone invest in another country?

Well, there are plenty of reasons – why would a foreign company invest in any Indian Company?

 There could be tax incentives,

 The company believes that doing a particular business will be more profitable in India,

 There could be tax exemptions favorable to the company both in India and in the company’s home country,

 Or, it might be up for some concessions in the home country as a part of the country’s trade agreement with India …

 Or, the company might be aiming at starting operations in South Asia and India is the most developing economy in this part of the world!

The reason could something else too – but mostly it is related to more business opportunities, tax benefits, more profitability etc.

3. What FDI means to a company?

 Foreign Investors become shareholders of a sizeable stake – and the reason they are investing is because they want returns – good returns.

 Which means they’ll be very much interested in the working of the company – so that their money earns returns.

 They’ll also be active shareholders, board members – and ensure the company is utilizing its resources properly and towards the growth of the company, increasing turnover and ultimately profits.

 To ensure the company gets the best resources to produce best results – the FDI investors may also bring with them management personnel, advanced technology, new system of work and management of the company etc.