Management of International Business International investments -Foreign Direct Investment and its nature plus its role in India.

1. By-Pooja Ahlawat

2. INTERNATIONAL INVESTMENT &
FUNDING
International investing involves selecting global investment instruments
as part of a geographically diversified portfolio. People often invest
internationally to increase the diversification of their portfolio and spread
investment risk among foreign markets and companies.

4. WHAT IS FDI?
Foreign direct investment (FDI) is an investment from a party in one country
into a business or corporation in another country with the intention of
establishing a lasting interest. Lasting interest differentiates FDI from foreign
portfolio investments, where investors passively hold securities from a
foreign country. A foreign direct investment can be made by obtaining a
lasting interest or by expanding one’s business into a foreign country.

5. LASTING INTEREST AND THE
ELEMENT OF CONTROL-FEATURE
OF FDI
Foreign direct investment frequently goes beyond capital investment. It may include the
provision of management, technology, and equipment as well.
 A key feature of foreign direct investment is that it establishes effective control of the
foreign business or at least substantial influence over its decision-making.
Control represents the intent to actively manage and influence a foreign firm’s operations.
This is the major differentiating factor between FDI and a passive foreign portfolio
investment.
FDI is generally a larger commitment, made to enhance the growth of a company.

6. NATURE OF FDI
According to the UN’S World Investment Report, FDI includes three
components:
I. Equity Capital
II. Reinvested Earnings
III. Intra-Company Loans
 The most advanced, expensive, complex, and riskiest entry
strategy, involving the establishment of manufacturing plants,
marketing subsidiaries, or other facilities abroad.
 Undertaken by firms from both the advanced economies and
emerging markets.
 Target countries are both advanced economies and emerging
markets.

7. NATURE OF INDIAN FDI
FDI inflows in India said to include the following:
Reserve Bank of India’s automatic approval route for equity holding
up to 51 percentage.
FIB’s discretionary approval; route for larger projects with equity
holding greater than 51%.
Acquisition of shares(since 1996)
RBI’s non-resident Indian schemes, and
External Commercial borrowings(ADR/GDR route).

8. HOW ITS DIFFERENT ?
Indian definition of FDI differs from that of the World Investment
Report.
As IMF’s definition includes external commercial borrowings, reinvested
earnings and subordinated debts ,while World Investment Report
excludes external commercial borrowings.
FDI policy in India also includes external commercial borrowings.

9. FDI IN INDIA
The investment climate in India has
improved tremendously since 1991 when
the government opened up the economy and
initiated the LPG strategies.
The improvement in this regard is
commonly attributed to the easing of FDI
norms.
Many sectors have opened up for foreign
investment partially or wholly since the
economic liberalization of the country.
Currently, India ranks in the list of the top
100 countries in ease of doing business.
In 2019, India was among the top ten
receivers of FDI, totalling $49 billion inflows,
as per a UN report. This is a 16% increase
from 2018.
In February 2020, the DPIIT notifies policy
to allow 100% FDI in insurance
intermediaries.

11. BENEFITS OF FDI
Economic development stimulation:
FDI can stimulate a target country’s economic development and create a more
conducive environment for companies, the investor, and stimulate the local community
and economy.
Easy international trade:
Countries usually have their own import tariffs, which makes trading rather difficult. A
lot of economic sectors usually require presence in the international market’s to ensure
sales and goals are met. FDI makes all of these international trade aspects a lot easier.
Employment and economic boost:
FDI creates new jobs and more opportunities as investors build new companies in
foreign countries. This can lead to an increase in income and more purchasing power to
locals, which in turn leads to an overall boost in targeted economies.

12. Tax incentives:
Foreign investors receive tax incentives that are very beneficial regardless of your selected
field of business. Everybody loves a tax write-off.
Development of resources:
The development of human capital resources is a big advantage of FDI. The skills gained by the
workforce through training increases the overall education and human capital within a country.
Countries with FDI are benefiting by developing their human resources all while maintaining
ownership.
Resource transfer:
Foreign direct investment allows for resource transfers and the exchanges of knowledge,
technologies, and skills.
Reduced costs:
Foreign direct investment can reduce the disparity between revenues and costs. With such,
countries will be able to make sure that production costs will be the same and can be sold
easier.

13. MCQ
The foreign direct investment includes
A) Intellectual Property
B) Human Resource
C) Tangible Good
D) Intangible Goods

14. MCQ
When capital and labor are moved internationally, it will help in
developing
A) Economic growth gains
B) Capital gains
C)More gain from income
D) More gains from trade

15. MCQ
Who Regulates Foreign Trade In India?
A)SEBI
B)FEDAI
C)RBI
D)DGFT

16. REFERENCES
https://www.investopedia.com/terms/i/international-investing.asp
https://www.business-standard.com/about/what-is-fdi
https://www.investopedia.com/terms/f/fdi.asp
https://corporatefinanceinstitute.com/resources/knowledge/economi
cs/foreign-direct-investment-fdi/
https://www.investindia.gov.in/foreign-direct-investment