Foreign Direct Investment, commonly referred to as FDI is an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor. It is not 'portfolio foreign investment (investment in another country's securities like bonds and stocks only for short term, mainly in order to gain profit)'. FDI involves the direct control of asset and equity so that they can participate in managerial decisions and influence the policy of company. FDI is long term in nature and   regarded as better than foreign portfolio investment.

It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development.  

Direct and Indirect Investment

Investment in Indian companies can be made both by non-resident as well as resident Indian entities. Any non-resident investment in an Indian company is direct foreign investment. Investment by resident Indian entities could again comprise of both resident and non-resident investment. Thus, such an Indian company would have indirect foreign investment if the Indian investing company has foreign investment in it. The indirect investment can also be a cascading investment i.e. through multi-layered structure.

Genesis of FDI in India:

• Substantial liberalization in foreign investment was announced in the New Industrial Policy declared by the government on 24th July 1991 and doors of several industries have been opened up for foreign investment.  Prior to this policy, foreign capital was generally permitted only in the those industries where Indian capital was scarce and was not normally permitted in those industries which had received government protection or which are of basic and/or strategic importance to the country. I
• This included the setting up of the Foreign Investment Promotion Council along with the Foreign Investment Promotion Board (FIPB) being streamlined and made more transparent. The first ever guidelines were announced for consideration of foreign direct investment proposals by the FIPB, which were not covered under the automatic route.
• The trends of FDI latterly shown in policy formulation. For example in 1999-2000, when a second year of decline continued a Foreign Investment Implementation Authority (FIIA) was set up for providing a single point interface between foreign investors and the government machinery, including state authorities.  This body was also empowered to give comprehensive approvals. After this point FDI has acquired an acceptable status and the debate is on the levels that will be allowed.
• After 2004, foreign direct investment become normal subject to India, there is substantial development in foreign inflow in the form of FDI.

In India FDI follow two routes to enter in India:

• Automatic route: Under this route foreign company don’t need any permission to invest in Indian company. Information regarding investment share with RBI within 30 days after investment.
• FIPB route: Under this route foreign company have to take permission from FIPB before investing in India.

In telecom sector FDI upto 49 % is permitted under automatic route while FDI more than 49 % to 100 % is permitted through FIPB route.