FDI Full Form

Foreign Direct Investment, a full form of FDI, is a type of investment made by the individual or company located in one country into the business entity located in another country. The foreign entity makes foreign Direct Investment to take full or partial ownership control of the company in one country or establish its unit in the same country. FDI allows the foreign firm to be directly involved in the day-to-day operations of another company. 

FDI is not just about the inflow of money to another company or country; it also includes technology, skills, knowledge, and expertise. Usually, it has been seen that FDI is made in countries having an open economy and prospect of growth along with a skilled workforce.

What are the methods of Foreign Direct Investment?

Following mentioned are some methods of Foreign Direct Investment:

• Acquiring voting rights by buying the shares of the foreign entity
• Mergers and acquisitions
• Joint ventures with foreign companies
• Setting up a subsidiary of the company located domestically in a foreign country

What are the types and examples of Foreign Direct Investment?

Foreign Direct Investment is categorized into two main types, and these are:

• Horizontal FDI: This type of FDI in which a company located domestically expands its operations to a foreign country. The same activities are conducted by the domestic entity but in another country. For instance, restaurants opened by McDonald’s in India will be considered horizontal FDI
• Vertical FDI: This type of FDI in which a company located domestically expands into another country by moving to a different level of the supply chain. In simple words, it can be said that different activities are conducted by the company in the foreign country. However, these activities are still related to the main branch located domestically. For instance, a large-scale farm is purchased by McDonald’s in Canada to produce meat for their restaurants. Therefore, the same will be considered Vertical FDI

Apart from the forms mentioned above of Foreign Direct Investment, two other forms are also observed:

• Conglomerate FDI: This is the form of FDI in which a company located domestically acquires an unrelated company in a foreign country. This type of FDI is carried rarely as two main barriers are to be overcome in such an investment- entering another country and entering a completely different industry or market. For instance, if Virgin Group, based in the United Kingdom, acquires the clothing line based in France, it can be said to be a conglomeration
• Platform FDI: This is the form of FDI in which a company located domestically expands into a foreign country, but the output generated from the foreign operations is exported to the third nation. For instance, if Honda purchases the manufacturing plants in Ireland to export cars to the other nations, it can be categorized as Platform FDI

Foreign Direct Investment in India

It was the year 1991 when the government of India opened up the country’s economy and initiated the LPG strategies. Since then, the investment climate in the country has tremendously improved.

• The main reason why the investment climate in India has been improved is FDI
• Many sectors in India have fully or partially opened up for FDI since the liberalization of the country’s economy
• When it comes to the ease of doing business in India, the country ranks in the list of top 100 countries globally
• In 2019, India was ranked in the list of top ten receivers of FDI ($49 billion inflow), recording a 16% increase from the last year (2018)
• From April to August 2020, the FDI inflow received was estimated at $35.73 billion. It was recorded as the highest figure ever received for the first five months of the financial year
• In the year 2020, India’s government decided to sell a 100% stake in Air India- the national airline

Conclusion

Foreign Direct Investment is beneficial for the foreign host country and the investor. While the host country receives financial assistance, technology, knowledge, expertise, etc., the investor can access lower production costs resulting in the economic development of both countries.