Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment (FPI) - Understanding

As is a very widely known fact today, in the global domain of market economics, there is very little that can be achieved by any nation on its own. The on-going pandemic and the global crisis that it has caused, has further increased the importance of global joint efforts and the economic spheres are no exceptions to this. As part of the developmental agenda of a country like India, where foreign capital and foreign investment has a huge role to play, the potential for inclusive growth through foreign investment is huge. This is where the importance of Foreign Portfolio Investment (FPI) comes into play.

FPI may comprise of:

  1. Equity holdings by non-residents in the joint-stock companies of the recipient country
  2. Creditor capital from private sources abroad invested in the joint-stock companies of the recipient country
  3. Creditor capital from official sources in the joint-stock companies of the recipient country

Principles of FPI Policy

The underlying principles of FPI policy are validated by the following obligations:

  1. Foreign capital once invested will be treated at par with indigenous capital, as far as market circulation of liquidity and sale and purchase of local services or commodities are concerned
  2. Facilities for remittance of profits abroad will continue
  3. Arguably, the major interest in ownership and effective control of an undertaking shall be in Indian interests
  4. If and when foreign enterprises are acquired, compensation will be paid on a fair and equitable basis

To encourage investment by non-resident Indians, liberal facilities have been made available to them under different schemes. Having due regard to the diversification of the industrial base in the country, the development of indigenous technology and the changing areas requiring foreign investment and technology, the government has reworked and revised the effective policy terms about collaborations. With the changing dynamics, there has been a huge revamp and change of course from the past where FPI discouraged local technology development and diffusion. Today, owing to the rapid shift from the past, the role played by local and indigenous technology cannot be undermined. Today, FPI serves as a model of technological diffusion that seeks to bridge the gap between foreign collaboration and indigenous technology.

The policy of complete reforms that have been followed in the current administrative set up has further encouraged FPI in many sectors. With this, as futuristic forecasting, the role of FPI in GDP contribution is also set to increase by volumes. However, it must be kept in mind that the factors that impact this are also numerous and must be projected because stress on R&D through FPI in diversified sectors is a growing need, especially in India. Then there are concerns about the dilution of equity as well, with some experts arguing in favor of a staggered approach towards FPI implementation, especially in vital sectors. Yet, the underlying truth remains that the administrative framework in this domain is rooted in both flexibility and objectivity. The data projections therefore, predict a generally healthy market scenario with participative collaboration bringing about a positive orientation in the overall Indian markets.

Tradebulls believes in institutional growth through collaboration and the need to tap into global benchmarks for fiscal inclusion.