Direct Investment

Reviewed by Sujaini | Updated on Aug 27, 2020

What is Direct Investment?

Direct investment, more commonly called Foreign Direct Investment (FDI), refers to an investment in a foreign business enterprise intended to gain a controlling interest in that sector.

Direct investment offers capital financing in return for an equity interest without the acquisition of a company stock's standard shares.

Breaking Down Direct Investment

The aim of Foreign Direct Investment (FDI) is to acquire sufficient equity interest to provide ownership of a company. In some cases, it involves a corporation from one country setting up business operations in another country, while in other cases it means gaining ownership of existing assets of a firm that is already operating in the foreign state.

A direct investment can involve gaining a majority interest in a company or a minority interest that is sufficiently large to give the investor effective control over the firm. Direct investment is primarily distinguished from investment in terms of the portfolio, the purchase of a foreign company's common or preferred stock shares, and the control element sought.

Control can come from sources other than capital investment, though control of things, such as technology is just critical input. In fact, foreign direct investment is often not a mere monetary transfer of ownership or interest controlling. It also involves complementary factors, such as organizational and management systems or technology.

About FDI in India

FDI is not only a vital engine of economic growth but also a major source of non-debt financial capital for India's economic development. Foreign businesses are investing in India to benefit from relatively lower salaries and special investment benefits, such as tax exemptions, etc.

Government Initiatives

  • In August 2019, under the automatic route in coal mining, the government allowed 100% FDI for open sale (as well as in the production of allied infrastructure, such as washeries).

  • In the Union Budget 2019-20, the Indian government consulted with all stakeholders and proposed opening FDI in the aviation, media (animation and AVGC), and insurance sectors.

  • Insurance intermediaries are permitted 100% FDI.