FDI POLICY
- February 3, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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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:
- Equity capital: It is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
- 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.
- 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:
- Automatic Route: In this, the foreign entity does not require the prior approval of the government or the RBI (Reserve Bank of India).
- The Foreign Investment Facilitation Portal (FIFP) facilitates the single window clearance of applications which are through approval route.
- Government Route: In this, the foreign entity has to take the approval of the government.