Before proceeding to the topic let's see the relevance of this topic in the new syllabus of UGC Net Commerce examination issued by NTA.
Unit I – Business Environment and International Business
International liquidity’ embraces all those assets which are internationally acceptable without loss of value in discharge of debts (on external accounts). In its simplest form, international liquidity comprises of all reserves that are available to the monetary authorities of different countries for meeting their international disbursement. In short, the term ‘international liquidity’ connotes the world supply of reserves of gold and currencies which are freely usable internationally, such as dollars and sterling.
The forex are reserve assets held by a central bank in foreign currencies. The components of India’s FOREX Reserves include Foreign currency assets (FCAs), Gold Reserves, Special Drawing Rights (SDRs) and RBI’s Reserve position with International Monetary Fund (IMF). FCAs constitute largest component of Indian Forex Reserves and are expressed in US dollar terms.
FDI refers to obtaining ownership in foreign business entity. It can also be attributed that FDI circulates capital across national boundaries. It can be defined as an investor based on one country (home country), acquires an asset in another country (host country), with the intention to manage it. Permission for Foreign Direct Investment (FDI) in India is not uniform for all sectors. Some sectors are opened up for 100% and in some sectors, it is allowed only upto 26%, 49% or 51%. Also, FDI is prohibited in sectors like lottery business, gambling, chit fund etc.
.A foreign institutional investor (FII) is an investor or investment fund registered in a country outside of the one in which it is investing. Institutional investors most notably include hedge funds, insurance companies, pension funds and mutual funds. The term is used most commonly in India and refers to outside companies investing in the financial markets of India. The biggest source through which FIIs invest is the issuance of Participatory Notes (P-Notes), which are also known as Offshore Derivatives.
Greenfield investments are done primarily for creation of new facilities or expansion of existing facilities. Firms often enter international markets by way of Greenfield investments in industries where technological skills and production technology are the key factors. Example – Foreign company setting up a new project in India and constructing factories for it..
An investment is called Brownfield when a company or government entity purchases or leases existing production facilities to launch a new production activity. This is an alternative to Greenfield investments. Example – Foreign company rather than setting up a new factory decides to acquire the business of existing factory.
The Department of Industrial Policy & Promotion is the nodal Department for formulation of the policy of the Government on Foreign Direct Investment (FDI). It is also responsible for maintenance and management of data on inward FDI into India, based upon the remittances reported by the Reserve Bank of India. The FDI policy is reviewed on an ongoing basis, with a view to making it more investor-friendly.
Foreign Direct Investment (FDI) is a major driver of economic growth and a source of non-debt finance for the economic development of the country. Government has put in place an investor friendly policy on FDI, under which FDI up to 100%, is permitted on the automatic route in most sectors/ activities. In the recent past, the Government has brought FDI policy reforms in a number of sectors viz. Defence, Construction Development, Insurance, Pension, Other Financial Services, Asset reconstruction Companies, Broadcasting, Civil Aviation, Pharmaceuticals, Trading etc.