FDI full form is Foreign Direct Investment. If a foreign company or person invests his money abroad, then the invested money is called FDI.
If a non-resident company invests money in a resident company then the invested amount is called Foreign Direct Investment(FDI).
The foreign company buys shares or debentures of the home company means to invest in a home company is known as Foreign direct investment.
When a company invests its money in another country, the country of the investing company is called the home country, and the country in which this money is invested is called the host country.
Even if the resident company invests in another company it can still be called FDI. In this case, the company is in its own country, but if it is an investor of a foreigner, then some part of the company’s investment is called FDI. In easy language, it’s called indirect FDI.
Foreign direct investment can be done in two ways.
One way is for foreign companies to invest in the company in your country.
The second way is for a foreign company to open its branch in your country.
If a foreign company buys 51% shares of a home company, then its complete control comes inside the home company.
For example, if a foreign company buys 51% shares of the Indian company, the foreign company will come to the holding company and the Indian company will be called a subsidiary company.
Details about FDI
FDI comes from a foreign country, so it is called foreign direct investment, which is invested in the home country.
The foreign country invests the money so that it can take the managerial power of the home country and can run the company well and make a profit.
This investment is done for the long term and there is a locking period of investment, meaning that they can invest their money in that company for a particular time period.
Any investment that is more than 10% inside a costume company is called FDI.
Types of FDI investment
1. Automatic route: Automatic route does not require any government approval.
2. Government Route: The government route needs a lot of procedures and approval to invest money in a company.
There is no need for taking Government approval to invest money in Agriculture and Animal Husbandry as it is a 100% automatic route.
Air transport services are non-schedule and another aviation sector is also 100% automatic route.
To invest in Air Transport Services Schedule and Transport Services, 49% government approval is required and 49% is the automatic route.
Airport land acquisition is a 100% automatic route.
The construction company is also a 100% automatic route.
The auto component sector and automobiles also do not require any government approval as it is also a 100% automatic route.
Banking and private sector support 49% government and 49% automatic route.
Benefits of FDI
- The foreign currency comes from the home country, it greatly benefits the home country.
- If a foreign company invests in a home company, then it also has to pay tax to the government. The government takes the tax and uses it for the home country.
- It helps in increasing the GDP of the country.
- Competition, and increases in efficiency cause the consumer to get a good quality of the product.
- National trade may also increase.
- Farmers will get more profit because if a new company comes, they will need raw materials and they will take raw materials from farmers.
- The competition will start between the home company and the foreign company. In which the foreign company is more likely to survive in the market.
- Domestic industries will suffer a huge loss.
- Foreign companies are allowed to relive in tax by tax and accordingly, the government also gets less tax.