What is in news : The Union Cabinet on approved raising the foreign investment limit in privatisation-bound PSU refiners.

Why this move : Aid the sale of the government’s stake in BPCL.

MAHITI FOR PRELIMS

FOREIGN DIRECT INVESTMENT

• Process whereby residents of one country (the home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).
• Comprise capital provided (either directly or through other related enterprises) by a foreign direct investor to an enterprise.
• Has three components,
  • Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a country other than its own.
  • Reinvested earnings comprise the direct investors’ share (in proportion to direct equity participation) of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested.
  • Intra-company loans or intra-company debt transactions refer to short- or long-term borrowing and lending of funds between direct investors (or enterprises) and affiliate enterprises.
• Routes through which India gets FDI:
  • Automatic Route: In this, the foreign entity does not require the prior approval of the government or the RBI.
  • Government route: In this, the foreign entity has to take the approval of the government.
  • The Foreign Investment Facilitation Portal (FIFP) facilitates the single window clearance of applications which are through approval route.