According to the Reserve Bank of India (RBI), outward direct investment (OFDI) made by domestic companies in 2024 has recorded a growth of nearly 17%, reaching $37.68 billion. According to Reserve Bank of India (RBI) data, total foreign direct investment in 2023 was $29 billion.
Foreign direct investment
- Foreign direct investment (ODI) means investment made by a company or individual in assets or businesses located in another country. It involves directly owning and controlling a foreign business, such as setting up subsidiaries, joint ventures, or branches in foreign markets.
Key points of Foreign Direct Investment (ODI)
- Control and influence: There must be a significant level of control or influence (usually at least 10% ownership) over the foreign business.
- Objective: To expand its operations, gain access to new markets, benefit from resources, or diversify risks.
- Investment form: It can be in the form of investments in foreign companies, real estate, infrastructure projects, or other assets.
- Sectors of investment by India: Hotels, construction, building materials, agriculture, mining, and services.
- Countries for investment: Countries like Singapore, US, UK, UAE, Saudi Arabia, Omani, and Malaysia.
Benefits of Foreign Direct Investment (ODI)
- Better access to technology: Indian companies get better access to technical knowledge.
- Expansion of global business: It provides companies with an opportunity to expand business globally.
- Wider market access: Indian companies get wider market access, which increases their competitiveness.
- Global customer base: Helps in building a global customer base, which increases revenue.
Framework for Foreign Direct Investment (ODI) in India
Rules and Regulations to be followed
- Section 6(3)(a) of the Foreign Exchange Management Act (FEMA) 1999, under the FEM (Permissible Capital Account Transactions) Regulations, 2000.
- FEM (Transfer or Issue of any Foreign Security) Regulations, 2000.
- Circulars issued by the Reserve Bank of India (RBI).
- Guidance on ODI issued by RBI.
- Liberalised Remittance Scheme (LRS) and FAQs (which are applicable to residents).
Conclusion
- Joint ventures (JVs) and wholly owned subsidiaries (WOS) have become important avenues for Indian players to expand their global presence.
- Indian companies are investing in their own subsidiaries, which indicates that they are expanding outwards.
- The continued international outreach of Indian companies is not only helping them expand globally but also strengthening economic ties between India and other countries.