Foreign Direct investments is the process whereby an foreign institutions acquire ownership of the assets or other institutions in the host nation.
Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor’s country of origin.
A parent business enterprise and its foreign affiliate are the two sides of the FD1 relationship. Together they comprise an MNC. The parent enterprise through its foreign direct investment effort seeks to exercise substantial control over the foreign affiliate company. ‘Control’ as defined by the UN, is ownership of greater than or equal to 10% of ordinary shares or access to voting rights in an incorporated firm. For an unincorporated firm one needs to consider an equivalent criterion.
Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially “hot money’ which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.
Types
A foreign direct investor may be classified in any sector of the economy and could be any one of the following:
•       an individual;
•       a group of related individuals;
•       an incorporated or unincorporated entity;
•       a public company or private company;
•       a group of related enterprises;
•       a government body;
•       an estate (law), trust or other societal organisation; or
•       any combination of the above.
Methods
The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods:
•       by incorporating a wholly owned subsidiary or company
•       by acquiring shares in an associated enterprise
•       through a merger or an acquisition of an unrelated enterprise
•       participating in an equity joint venture with another investor or enterprise
Incentives
•       low corporate tax and income tax rates
•       tax holidays
•       other types of tax concessions
•       preferential tariffs
•       special economic zones
•       EPZ – Export Processing Zones
•       Bonded Warehouses
•       investment financial subsidies
•       soft loan or loan guarantees
•       free land or land subsidies
•       relocation & expatriation subsidies
•       job training & employment subsidies
•       infrastructure subsidies
•       R&D support
•       derogation from regulations (usually for very large projects)
It should also to noted that FDI has been increasing over years. It was in 1991 that India opened doors for FDI and from 1991 till date, we have received FDI inflows of ` 6,03,119 crores, which shows great faith that the foreign companies have in India growth story.
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