WTF is FDI and why should you care

FDI or Foreign Direct Investment is simple it is when a company or an individual from one country invests into a business or asset in other country, unlike buying stocks which is called foreign Portfolio Investments) FDI usually involves gaining a controlling interest or a type of ownership in the foreign businesses. Like starting a new branch acquiring company or expanding operations.

Few Key Features that may enhance your knowledge.

• Long term investment - The FDI is usually aimed at establishing a longer interest in any business or asset.

• Control - The investor is usually meant to become a control head or become someone with good influence by any way in the company either by becoming something in management or sending someone to work by their team or any other way.

• Active involvement - If the investors are investing in any other foreign business or asset they are will definitely do something to perform active involvement which is obviously right because they are investing they need to know that everything is going right.

Types of FDI's

Usually there are just 4 types of FDI's in India (The name could be different on different platforms but the work and meaning's are same).

• Horizontal FDI - It is the most common FDI it involves investing in the foreign companies belonging to the same industry as that owned or operated by the investor. Like a US based leather brand invests in a leather brand in India.

• Vertical FDI - In this FDI a company expands itself in foreign countries by acquiring a business that really do the core main operation of their business or make the main component for their business. It's like acquiring a supply chain like for example a UK based tea shops company invested in the tea from the farms of Assam, since they invested in the tea farms they got a whole supply chain of the tea from India. (They could acquire a company that manufactures the main component of a business and a lot more examples are there).

• Conglomerate FDI - This name may feel a bit odd and believe me I still have some problem memorizing this name. So, this FDI is basically done in completely different industry. For profits obviously or some other reasons also like for example Walmart invested in the Tata Motors. ( You won't believe over more then 60% articles have this same example).

• Platform FDI - This FDI is simple a business expands it's operations in foreign countries by acquiring a company or creating a manufacturing company or by any means the main thing is that it is created to sell the created goods to a 3rd country which is done because of a lot of reasons but you may be most familiar with the cheap labor, so, some countries have the cheapest labors because of several reasons like government policies, education and a lot of reasons that we will cover in another blog which attract companies that needs to manufacture or assemble their products in cheap rate and then sell it to the country which can buy their product for the highest price.

Source - ibef.org

Now the main part comes into the play

How the heck does it work?????

So it's just simple suppose if a US based high fledged Smartphone company wants to start selling their phone in India and instead of selling the phone directly from manufacturing company they taught of setting up a manufacturing plant in India. This will bring money, technology, expertise and jobs to our country and which is really important for us.

Now the benefits of FDI

For the host country

• Economically it brings money, technology and new ideas that can boost productivity and growth of the country.

• It will boost job creation both directly or indirectly by giving jobs or making making more job opportunities in the supply chain.

• It can play a big role in skill development as the employees can learn a lot of new skills from foreign countries which can strengthen the whole workforce.

• Investment in things like the factories, offices and technology improves the country's infrastructure.

For the investors

• More market access as FDI allows more businesses to come and grow in the market.

• Lower production costs as the investors can find the techniques we used to work which we denote as 'Jugaad' that make the work so cheap and also they can find cheap employees if we compare to US and some other countries.

• We can't miss diversification so if the investors invest in us or other countries too they are just spreading their risks and growing internationally.

For the public

• Better infrastructure as the companies are going to invest to free flow their activities.

• More job opportunities which is obvious.

• More skill development opportunities.

• Higher standard of living as wages or salaries are going to increase.

• Improved access to products and services (From better manufacturing, retail expansion and etc).

• Contribution to GDP growth and increased public revenues.

The challenges which are keeping investors back from investing in India

• The Red tape and certain hurdles which means a lot of paper work and delayed decisions and actions and other delayed circumstances and rapid change in policies, taxation complexity, sector-specific restrictions and labor laws etc. ( Even though as India is currently focusing on increasing the FDI in the country the government are taking certain initiatives to solve these problems like certain time in which they don't need to pay taxes and don't need to follow certain labor laws).

• Cultural and operational challenges are other big reasons there are groups of peoples in India who really have that conservative thought process who don't want these companies to come in India as they think they would make India completely uncultured. who are right at some point but some times they do this because the political parties provoked them, they need to understand that the world is growing and if we won't grow with the same pace we will be finished.

Further ideas to further attract FDI in India

• Focus on emerging sectors is important like the EV manufacturing is booming then AI, healthcare and green energy this can really attract the investors if we do something in these booming industries.

• Strengthening India’s intellectual property (IP) laws and frameworks that could really impress the investors and convince them that there would be no hurdle in investing in India.

• Incentivizing foreign collaborations in R&D and innovation is important to access the technology and foster the knowledge and expertise sharing, faster commercialization and innovation and lot of reasons.

• Establishing special economic zones (SEZs) with cutting-edge infrastructure so the investors are sure and don't have to face problems setting up the businesses here and on the other hand it is also helpful the city can generate great infrastructures and get great development because of this.

How entrepreneurs can leverage FDI today

• Partnering with foreign investors for capital-intensive industries

• Collaborating in tech and R&D sectors for co-innovation

• Scaling startups globally by accessing foreign expertise and networks

• Creating joint ventures with international brands or companies

Okay so I know these much knowledge was more then enough but the most important thing that I need to add the current policy that the government introduced a time ago 

so there are three categories 

The automatic route

The government route

and the automatic + government route

in all the categories the 100% FDI is permitted, now I know it is a bit hard to understand so here's a easy explanation.

 

In India, FDI (Foreign Direct Investment) is allowed through three main categories or routes:

1. The Automatic Route:

• Under this route, foreign investors do not need any approval from the Indian government to invest in certain sectors. They can simply invest up to 100% of the company’s shares without any hassle.

• Example: Sectors like manufacturing, IT, and construction often fall under this category, allowing foreign companies to invest freely.

2. The Government Route:

• In some sectors, foreign investment requires prior approval from the Indian government. Companies must submit an application to relevant authorities, and the investment will be reviewed before it’s allowed.

• Example: Sensitive areas like defense, telecom, and media may require government clearance before foreign companies can invest.

3. The Automatic + Government Route:

• For certain sectors, FDI is allowed through both the Automatic and Government routes, but only up to a certain percentage. For example, automatic approval is granted for investments up to 49%, but beyond that, government approval is needed for higher investments, sometimes up to 100%.

• Example: Insurance might allow automatic FDI up to 49%, but beyond that requires government approval for additional investment.

In all these categories, 100% FDI is permitted in many sectors, meaning foreign companies can own the entire business, but the route (automatic or government) depends on the sector and the level of investment.

This system ensures that foreign investments are regulated based on how sensitive or strategic the industry is to India’s economy or security.

In conclusion, Foreign Direct Investment (FDI) plays a crucial role in shaping the economic landscape of a country, offering numerous benefits such as increased capital flow, job creation, technology transfer, and improved infrastructure. While FDI opens doors for greater collaboration, innovation, and economic growth, it is essential to navigate the potential challenges like market dominance, loss of sovereignty, and pressure on domestic industries.

By strategically incentivizing foreign collaborations in R&D and innovation, countries like India can harness global expertise to drive technological advancements and strengthen their local economy. Balancing these opportunities with smart regulations ensures that both foreign investors and the host country can thrive. In a globalized world, FDI is more than just a financial inflow—it’s a key driver for future-ready economies and competitive industries, making it beneficial for entrepreneurs, investors, and the wider population.

A huge thank you to Dr. Suruchi Mittar ma'am because of whom I got this idea she is Chief Industry Officer in Invest India and I got this idea to write this blog after attending Rajasthan Summit hosted by the ET government and specially listening to her in the panel discussion.

A photo of me with Dr. Suruchi Mittar ma'am at the Rajasthan Summit

And if you guyzzz need any help with anything in marketing or strategy or consultation about the product want to know more about the FDI and ask how you can start you can DM me on LinkedIn anytime.

Here's the profile link.

Here it is!!!!

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