FOREIGN DIRECT INVESTMENT

Foreign direct investment is a major sources of fund channelised in the form of direct contribution to the equity capital of the company and is akin to domestic equity invested by the corporate shareholders. Prior to 1991 FDI was allowed only on a case to case basis with a ceiling of 40% on the total equity capital.
Under the new industrial policy foreign equity has been de-linked from technology transfer. Moreover FDI is being sought actively in a wide range of high priority /export oriented/critical infrastructure industries.
The major driving force for FDI is to tap foreign market where excess return can be earned as this provide incremental opportunities to MNC/International firm to earn higher return through lower cost and more sales and thus higher growth by expansion.

Govt. policy is to facilitate FDI and investment from non resident Indian including overseas corporate bodies that are predominantly own by them to complement and supplement domestic investment.
FDI is freely allowed in all sectors including the service sector except where the existing and notified sectoral policy does not permit beyond a ceiling.
The FDI for virtually all items/activities can be brought in through the automatic route, under power delegated to the RBI and for the remaining items/activities through Govt.approval accorded on the basis of the recommendation of the Foreign Investment Promotion Board(FIPB).
Therefore FDI is a attractive source of capital from international market through Equity investment, by issuing GDRs, ADRs FCCBs etc, it is also allowed to small scale sector up to 24%, Investment through preference share ,Investment by Non resident Indian and overseas corporate bodies, through foreign technology agreement etc. are also treated the Foreign direct Investment.