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Jump to: navigation, search Foreign direct investment (FDI) is investment directly into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. [1] [2] As a part of the national accounts of a country FDI refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.[3] It is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.[4] FDI is one example of international factor movements.
History
The figure below shows net inflows of foreign direct investment in the United States. The largest flows of foreign investment occur between the industrialized countries (North America, Western Europe and Japan). US International Direct Investment Flows:[5]
Period FDI Inflow FDI Outflow $ 5.13 bn $ 40.79 bn $ 329.23 bn $ 907.34 bn Net Inflow + $ 37.04 bn + $ 81.93 bn $ 122.96 bn + $ 43.13 bn
Types
1. Horizontal FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI.[6] 2. Platform FDI 3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.[7]
Whereas Horizontal FDI decrease international trade as the product of them is usually aimed at host country, the two other types generally act as a stimulus for it.
Methods
The foreign direct investor may acquire 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...
Foreign direct investment incentives may take the following forms:[citation needed]
low corporate tax and individual income tax rates tax holidays other types of tax concessions preferential tariffs special economic zones EPZ Export Processing Zones Bonded Warehouses Maquiladoras investment financial subsidies soft loan or loan guarantees free land or land subsidies relocation & expatriation infrastructure subsidies R&D support derogation from regulations (usually for very large projects)
The United States is the worlds largest recipient of FDI. U.S. FDI totaled $194 billion in 2010. 84% of FDI in the U.S. in 2010 came from or through eight countries: Switzerland, the United Kingdom, Japan, France, Germany, Luxembourg, the Netherlands, and Canada.[9] The $2.1 trillion stock of FDI in the United States at the end of 2008 is the equivalent of approximately 16 percent of U.S. gross domestic product (GDP). Benefits of FDI in America: In the last 6 years, over 4000 new projects and 630,000 new jobs have been created by foreign companies, resulting in close to $314 billion in investment.[citation needed] US affiliates of foreign companies have a history of paying higher wages than US corporations.[citation needed] Foreign companies have in the past supported an annual US payroll of $364 billion with an average annual compensation of $68,000 per employee.[citation needed] Increased US exports through the use of multinational distribution networks. FDI has resulted in 30% of jobs for Americans in the manufacturing sector, which accounts for 12% of all manufacturing jobs in the US.
Affiliates of foreign corporations spent more than $34 billion on research and development in 2006 and continue to support many national projects. Inward FDI has led to higher productivity through increased capital, which in turn has led to high living standards.[10][dead link]
Actor Aamir Khan has been invited to speak in the Rajya Sabha on the subject of foreign direct investment in the pharmaceutical sector. He will speak in the upper house on Thursday. The actor, whose TV serial 'Satyamev Jayate' has generated discussions on social ills across the country, had recently highlighted the lacunae in the health care system in the country. PUNE
Retro tax change not to hit foreign direct investment: Kaushik Basu
May 11, 2012 | Agencies NEW DELHI: Chief economic advisor Kaushik Basu on Thursday said amending the Income Tax Act with retrospective effect will not impact foreign investments into India. "This is being seen as a one off thing... There were certain aberrations, certain misunderstandings on the law that we have adjusted," Basu said. INDIA-BUSINESS
Consensus bid on retail foreign direct investment, goods and services tax: Pranab Mukherjee
May 28, 2012 | TNN KOLKATA: The Centre is trying to build "consensus" on several key policies issues like FDI in retail and goods and services tax to strengthen financial markets for long-term investments, Union finance minister Pranab Mukherjee said on Sunday. His comment
assumes significance in a situation where ally Mamata Banerjee and SP chief Mulayam Singh Yadav are vehemently opposed to retail FDI. "We are working to build a policy... INDIA-BUSINESS
Retro tax change not to hit foreign direct investment: Kaushik Basu
May 11, 2012 | Agencies NEW DELHI: Chief economic advisor Kaushik Basu on Thursday said amending the Income Tax Act with retrospective effect will not impact foreign investments into India. "This is being seen as a one off thing... There were certain aberrations, certain misunderstandings on the law that we have adjusted," Basu said. INDIA-BUSINESS
PUNE
Narayana Murthy's wish list for Budget 2012: Focus on education, health and FDI
February 27, 2012 | PTI
BANGALORE: Ahead of the presentation of the Union Budget, software icon NR Narayana Murthy today urged the government to make it easier for businesses to grow and foreign direct investment, among others. On his wish-list for the budget, the chairman emeritus of software major Infosys, told reporters here that if the government can do whatever is needed to accelerate the country's progress in basic and higher education, in the areas of nutrition, health and shelter, "that would be good". CHANDIGARH
conceded that red tape was the cause for low fdi touching only $ 4 billion and sought the support of all political parties to enable the government bring a slew of proposals. "if support is given by all political parties specially for reform of labour laws and other measures, we can increase foreign direct investment in the country," he said. INDIA-BUSINESS
FDI in retail: I will set Walmart stores on fire, threatens Uma Bharati
November 25, 2011 | PTI LUCKNOW: BJP leader Uma Bharati on Friday threatened to set on fire Walmart store wherever it opens in the country to register her party's protest against allowing Foreign Direct Investment (FDI) in retail. "By giving permission to Walmart to directly invest in the retail sector, the Centre has jeopardised the employment opportunities of Dalits, poor and backwards," she told reporters here. "I would personally set afire the showroom when it opens anywhere in the country and I am ready to be arrested for the act," Bharati said, condemning the decision of the Union cabinet to allow 51 per cent FDI in multi-brand retail and 100 per cent FDI in single-brand retail. INDIA
PUNE: The India Power Summit 2011 , a 2-day conference will be held on September 30 and October 1, 2011 to discuss and identify the challenges, investment opportunities in conventional and renewable energy sectors to leverage the enormous opportunities inherent in the Indian power sector. PUNE: The India Power Summit 2011 , a 2-day conference will be held on September 30 and October 1, 2011 to discuss and identify the challenges, investment opportunities in conventional and renewable energy sectors to leverage the enormous opportunities inherent in the Indian power sector. INDIA
NEW DELHI: India is set to attract foreign direct investment of $40 billion in fiscal 2008-09 with overseas investors betting big on the manufacturing sector in world's second fastest growing economy. The country received $20 billion foreign direct investment (FDI) between January and June in the calendar 2008 and $10 billion in the first quarter of the current fiscal. "Going by this, achieving $40 billion in 2008-09 does not seem unrealistic," secretary in the department of Industrial Policy and Promotion Ajay Shankar said. INDIA-BUSINESS
NEW DELHI: As a major policy reform, the government on Wednesday announced 100% foreign direct investment in the facsimile editions of foreign newspapers, provided the investment is held directly by the owners of original publication. "The policy of foreign direct investment in the publication of facsimile edition of foreign newspapers include permitting 100% FDI with prior approval of the government, provided the FDI is by the owner of the foreign newspaper...," an official release said. INDIA-BUSINESS
Akali Dal (SAD) is an important ally of National Democratic Front ( NDA), which has been strongly opposing foreign investment in multi-brand retail sector. In a letter to commerce and industry minister Anand Sharma on Thursday, Badal said, "We strongly believe that opening FDI in multi-brand retail will bring in expertise, experience and resources of foreign retailers. PUNE
Sharma said both in the Lok Sabha and Rajya Sabha that the policy on single brand retail has also been liberalised, removing the 51 per cent cap on foreign direct investment (FDI). Allowing FDI in multi-brand retail, which is dominated by neighbourhood stores, will be subject to riders including a minimum investment of USD 100 million (Rs 5,200 crore)
With strong governmental support, FDI has helped the Indian economy grow tremendously. But with $34 billion in FDI in 2007, India gets only about 25% of the FDI in China.
Foreign direct investment (FDI) in India has played an important role in the development of the Indian economy. FDI in India has in a lot of ways enabled India to achieve a certain degree of financial stability, growth and development. This money has allowed India to focus on the areas that needed a boost and economic attention, and address the various problems that continue to challenge the country. India has continually sought to attract FDI from the worlds major investors. In 1998 and 1999, the Indian national government announced a number of reforms designed to encourage and promote a favorable business environment for investors.
FDIs are permitted through financial collaborations, through private equity or preferential allotments, by way of capital markets through euro issues, and in joint ventures. FDI is not permitted in the arms, nuclear, railway, coal or mining industries.
A number of projects have been implemented in areas such as electricity generation, distribution and transmission, as well as the development of roads and highways, with opportunities for foreign investors. The Indian national government also granted permission for FDIs to provide up to 100% of the financing required for the construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores, approximately $352.5 million. Currently, FDI is allowed in financial services, including the growing credit card business. These also include the non-banking financial services sector. Foreign investors can buy up to 40% of the equity in private banks, although there is condition that these banks must be multilateral financial organizations. Up to 45% of the shares of companies in the global mobile personal communication by satellite services (GMPCSS) sector can also be purchased. In 2007, India received $34 billion in FDI, a huge growth compared to the previous years, but significantly less than the $134 billion that flowed into China. Although the Chinese approval process is complex, China continues to outshine India as a choice destination for foreign investors. Why does India, a country with resources and a skilled workforce, lag so far behind China in FDI amounts?
Physical infrastructure is the biggest hurdle that India currently faces, to the extent that regional differences in infrastructure concentrates FDI to only a few specific regions. While many of the issues that plague India in the aspects of telecommunications, highways and ports have been identified and remedied, the slow development and improvement of railways, water and sanitation continue to deter major investors. Federal legislation is another perverse impediment for India. Local authorities in India are not part of the approval process and the large bureaucratic structure of the central government is often perceived as a breeding ground for corruption. Foreign investment is seen as a slow and inefficient way of doing business, especially in a paperwork system that is shrouded in red tape.