FDI POLICY

FDI POLICY

TOPIC: Economy

Context- The DPIIT is in the last phase of its interministerial discussion on making changes to the Foreign Direct Investment (FDI) policy to allow disinvestment in Life Insurance Corporation.

Concept-

Foreign Direct Investment:

• FDI is the process whereby residents of one country (the home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).
• It is different from Foreign Portfolio Investment where the foreign entity merely buys stocks and bonds of a company. FPI does not provide the investor with control over the business.
• It is administered by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.

Components:

1. Equity capital: It is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
2. Reinvested earnings: It comprises the direct investors’ share of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested.
3. Intra-company loans: These refer to short- or long-term borrowing and lending of funds between direct investors (or enterprises) and affiliate enterprises.

Routes through which India gets FDI:

1. Automatic Route: In this, the foreign entity does not require the prior approval of the government or the RBI (Reserve Bank of India).
   1. The Foreign Investment Facilitation Portal (FIFP) facilitates the single window clearance of applications which are through approval route.
2. Government Route: In this, the foreign entity has to take the approval of the government.