NTA UGC NET - Commerce - UNIT 01 - BUSINESS ENVIRONMENT AND INTERNATIONAL BUSINESS - PART 03

 

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UNIT 01

BUSINESS ENVIRONMENT AND INTERNATIONAL BUSINESS

PART 03

 

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MCQ: FDI that result in the establishment of new factories and plants in the foreign country
 

a. Horizontal Investment
b. Greenfield Investment
c. Vertical Investment
d. Brownfield investment
 

Ans: Greenfield Investment

 

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Foreign Direct Investment

Investment made by a firm or individual in one country into a business or corporation located in another country with the intension of establishing a lasting interest.

FDI takes place when

• An investor establishes foreign business operations or acquires foreign business assets in a foreign company.

• Opening of a subsidiary or associate company in a foreign country.

• Acquiring a controlling interest in an existing foreign company or by means of a merger or joint venture with a foreign company

Investment in foreign securities, bonds and other forms of portfolio investments do not form FDI (FPI)

FDI – Investment in Physical asset

FPI - Investment in financial asset

Types of Foreign Direct Investment

• Horizontal investment - Refers to the investor establishing the same type of business operation in a foreign country as it operates in its home country (a cell phone provider based in the United States opening stores in China).

• Vertical investment - One in which different but related business activities from the investor's main business are established or acquired in a foreign country

• Conglomerate investment - One where a company or individual makes a foreign investment in a business that is unrelated to its existing business in its home country

• Brownfield investment - when a company purchases or leases an existing facility.

 
Modes of FDI entry

• Wholly owned subsidiaries

• Joint ventures

• Merger and Acquisitions

FDI in India

• FEMA Act 1999

• Allowed under two routes

• Automatic Route and Approval Route

• Automatic Route – 100% investment is allowed

• Approval Route – Govt. approval is required

FDI in India is currently not permitted in the following sectors:

 

• Lottery Business including Government /private lottery, online lotteries, etc;

• Gambling and Betting including casinos etc.;

• Chit funds;

• Nidhi company (borrowing from members and lending to members only);

• Trading in Transferable Development Rights (TDRs); 

• Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes;

• Activities / sectors not open to private sector investment e.g. Atomic Energy.

• Legal and accounting services

 

Foreign Investment Promotion Board (FIPB)

• Process FDI proposals

• Make recommendations for govt. approval

 

Foreign Investment Implementation Authority (FIIA)

• Facilitates quick translation of FDI approvals into implementation.

 

The services sector in India received the highest share in FDIs

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