What Do You Mean By Foreign Direct Investment (FDI)

FDI Onlinehyme

Foreign Direct Investment is direct investment by a company in production or in business located in another country either by buying a company in the country or by expanding operations of an existing business in the country.

An investment abroad, usually where the company being invested in is controlled by the foreign corporation.

As we take a look of FDI during independence it was one of fear and suspicion. Because of previous exploitative role played by Britisher in “draining away” resources from one country. This kind of fear & hostility also found expression in the Industrial policy of 1948.

In 1991 the government announced new Industrial policy. It was LPG. Liberalizations, Privatization Globalization. Economic reform. According to this government relaxed its policy concerning majority of ownship in several cases and granted several tax concessions for foreign personnel.

Now if we take a look of FDI in Indian economy from 1990 to 2010. The investment is very increased constantly. During 1990-91 if was near about 1 billion U.S. Dollar and now in 2010 it was near about 50.8. billion US dollar.

Types of FDI

Foreign Direct Investment (FDI) can be classified into three main types: Horizontal FDI, Platform FDI, and Vertical FDI.

1. Horizontal FDI: This type of FDI refers to a foreign investment in a business that operates in the same industry as the investor’s home country business. For example, a Japanese car manufacturer investing in a car manufacturing plant in the United States. The purpose of this type of investment is often to expand the investor’s market share or gain access to new markets.

2. Platform FDI: Platform FDI occurs when a foreign investor sets up a subsidiary or affiliate in a country that serves as a hub for the investor’s regional or global operations. The purpose of this type of investment is often to take advantage of favorable tax or regulatory conditions in the host country, as well as to access a skilled workforce or strategic location.

3. Vertical FDI: This type of FDI occurs when a foreign investor invests in a business that is either upstream or downstream in the supply chain of the investor’s home country business. For example, a German car parts manufacturer investing in a factory that produces specialized parts for their cars in China. The purpose of this type of investment is often to secure supplies, reduce costs, or gain access to new technologies.

Each type of FDI has its own advantages and disadvantages, and the choice of investment type depends on the investor’s goals and the conditions in the host country.


There are some methods through which an investor can invest in other country.

  • By incorporating a wholly owned subsidy
  • By acquiring share in an associated enterprise
  • Through a merger or an acquisition of an unrelated enterprise

The Forms of FDI incentive:-

  • Low corporate tax and individual income tax rates
  • Tax holidays
  • Other type of tax concessions
  • Special economic zones
  • Free land and land subsidies
  • Infrastructure subsidies
  • Soft loan and loan guarantees

The advantages of FDI:-

  • Large and growing market
  • World class scientific, technical and managerial power
  • Cost effective and highly skilled labour
  • Well established legal system with independent judiciary
  • Developing banking system with vibrant capital market
  • Well developed accounting, legal, actual and consultancy profession

The Disadvantages of FDI:

  • Industrial sector dominance in the domestic market
  • Technological dependence on foreign technology sources
  • Disturbance of domestic economic plans in favour of FDI-Directed Activities

Indian Scenario at world Level

According to UNCTAD ( United Nation Conference on Trade and Development 2007. India’s rank FDI at world level was 35th. That was 76.226 million US dollar.

And when we analysis the data of CIA (Central Intelligence Agency) world fact book. “Stock of FDI at home” India was 22nd rank in the world. The amount was 191,1000,000,000 US Dollar. In India the main sources of FDI countries are Mauritius, Singapore, The US, the UK and the Japan.


It can be seen from above discussion that the increase of FDI in India can enable to increase the output, export, labour, technologies or skills in Indians. But on the other hand it made us technological dependent. The MNC can easily exploit our national resources. It will also disturb our local or domestic economic plans and activities.

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