VIGNAHARTA TRUST
SHIVAJIRAO S. JONDHLE COLLEGE OF
ENGINEERING & TECHNOLOGY,
ASANGAON
UNIVERSITY OF MUMBAI
Subject: FINANCIAL REGULATION
“FOREIGN DIRECT INVESTMENT
REGULATIONS”
MASTER OF MANAGEMENT STUDIES
SEMESTER – III
2024-2025
INDEX
1
CHAPTER NO PARTICULARS PAGE NO
1 Introduction 03 - 04
2 Legal Framework, 05 - 09
Restrictions and
Limitations,
Compliance &
Government
Measures of FDI
3 Conclusion 10
4 Bibliography 11
Introduction
2
Foreign Direct Investment (FDI)
The term foreign direct investment (FDI) refers to an
ownership stake in a foreign company or project made by an
investor, company, or government from another country. FDI
is generally used to describe a business decision to acquire a
substantial stake in a foreign business or to buy it outright to
expand operations to a new region. The term is usually not
used to describe a stock investment in a foreign company
alone. FDI is a key element in international economic
integration because it creates stable and long-lasting links
between economies.
Any investment from an individual or firm that is located in a
foreign country into a country is called Foreign Direct
Investment.
Generally, FDI is when a foreign entity acquires
ownership or controlling stake in the shares of a
company in one country, or establishes businesses there.
It is different from foreign portfolio investment where
the foreign entity merely buys equity shares of a
company.
In FDI, the foreign entity has a say in the day-to-day
operations of the company.
FDI is not just the inflow of money, but also the inflow
of technology, knowledge, skills and expertise/know-
how.
It is a major source of non-debt financial resources for
the economic development of a country.
3
FDI generally takes place in an economy which has the
prospect of growth and also a skilled workforce.
FDI has developed radically as a major form of
international capital transfer since the last many years.
The advantages of FDI are not evenly distributed. It
depends on the host country’s systems and
infrastructure.
4
Legal Framework for FDI
National Laws
Each country has specific legislation governing FDI,
including laws on foreign investment, company registration,
and intellectual property.
International Treaties
Multilateral agreements like the World Trade Organization
(WTO) promote free trade and limit restrictions on FDI.
Bilateral Agreements
Countries may enter into bilateral investment treaties (BITs)
to provide legal protection for their investors abroad.
Restrictions and Limitations on FDI
Sectoral Restrictions
Certain sectors, such as defense or media, may be subject to
limitations or outright prohibitions on foreign ownership.
Performance Requirements
Governments may require foreign investors to meet specific
targets, such as local employment or export levels.
Ownership Caps
Regulations may impose limits on the percentage of foreign
ownership allowed in certain industries.
5
FDI Screening and Approval Process
Application Submission
Foreign investors typically need to submit an application to
the relevant government agency.
Review and Assessment
The government reviews the application, considering factors
such as the investor's credentials and the proposed
investment's potential impact.
Approval or Rejection
The government may approve the investment, impose
conditions, or reject it based on national security, economic,
or social considerations.
Compliance and Reporting Requirements
Regular Reporting
Foreign investors may be required to submit regular reports
on their operations, financial performance, and compliance
with regulations.
Legal Compliance
Foreign investors must adhere to all applicable laws and
regulations, including labor laws, environmental standards,
and intellectual property rights.
6
Audits and Inspections
Government agencies may conduct audits or inspections to
ensure compliance with FDI regulations.
Trends and Outlook in FDI Regulations
Digitalization
FDI regulations are increasingly incorporating digital
technologies, such as online platforms for applications and
reporting.
Sustainable Development
Regulations are evolving to promote sustainable investment
practices, with a focus on environmental, social, and
governance (ESG) factors.
Global Economic Shifts
FDI regulations are likely to adapt to changes in global
economic dynamics, such as trade tensions and technological
advancements.
Government Measures to increase FDI in India
7
1. Government schemes like production-linked incentive
(PLI) scheme in 2020 for electronics manufacturing,
have been notified to attract foreign investments.
2. In 2019, the amendment of FDI Policy 2017 by the
government, to permit 100% FDI under automatic route
in coal mining activities enhanced FDI inflow.
3. FDI in manufacturing was already under the 100%
automatic route, however, in 2019, the government
clarified that investments in Indian entities engaged in
contract manufacturing is also permitted under the 100%
automatic route provided it is undertaken through a
legitimate contract.
4. Further, the government permitted 26% FDI in digital
sectors. The sector has particularly high return
capabilities in India as favourable demographics,
substantial mobile and internet penetration, massive
consumption along technology uptake provides great
market opportunity for a foreign investor.
5. Foreign Investment Facilitation Portal (FIFP) is the
online single point interface of the Government of India
with investors to facilitate FDI. It is administered by the
Department for Promotion of Industry and Internal
Trade, Ministry of Commerce and Industry.
6. FDI inflow is further expected to increase –
as foreign investors have shown interest in the
government’s moves to allow private train
operations and bid out airports.
8
Valuable sectors such as defence manufacturing
where the government enhanced the FDI limit under
the automatic route from 49% to 74% in May 2020,
is also expected to attract large investments going
forward.
Conclusion
9
In conclusion, foreign direct investment policy in India plays
a crucial role in fostering economic growth by attracting
capital, fostering innovation, and enhancing infrastructure.
While it creates opportunities for job creation and industry
diversification, careful management is essential.
Bibliography
10
Reserv Bank Of India
Wikipedia
www.investindia.gov.in
11
Thank You
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