FOREIGN DIRECT INVESTMENTS

Foreign Direct Investment (FDI) plays an important role in the long-term economic development of a country not only as a source of capital but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity and generating new employment opportunities. FDI also has an important role in enhancing exports. We in India see

FDI as a developmental tool.

Foreign investor sentiments are not always dictated by common sense. The behaviour of foreign investors is difficult to predict and depends on several other factors such as prio experience,tolerance of economic and political risks and long term objectives.

The policy of the Government of India is to strive to maximize the developmental impact and spin-offs of FDI. While the Government encourages, and indeed, welcomes FDI in all the sectors where it is permitted, we are especially looking for large FDI inflows in the development of infrastructure, technological upgradation of Indian industry through ‘greenfield’ investments in manufacturing, and in projects having the potential for creating employment opportunities on a large scale. We also invite investments in setting up Special Economic Zones and establishing manufacturing units therein.

Our Target

• Greenfield investment - Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace.  The Organization for International Investment cites the benefits of greenfield investment (or insourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms); investments in research and development; and additional capital investments. Criticism of the efficiencies obtained from greenfield investments include the loss of market share for competing domestic firms.  Another criticism of greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinational's home economy.  Critics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy.

• Mergers and Acquisition - Transfers of existing assets from local firms to foreign firms takes place; the primary type of FDI.  Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity.  Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company.  Unlike greenfield investment, acquisitions provide no long term benefits to the local economy-- even in most deals the owners of the local firm are paid in stock from the acquiring firm, meaning that the money from the sale could never reach the local economy.