FDI and ODI

FDI – Foreign Direct Investment

Definition:

FDI refers to the investment made by a non-resident entity or person in the equity capital of an Indian company. It is governed by the Foreign Exchange Management Act (FEMA), 1999 and regulated by RBI and DPIIT (Department for Promotion of Industry and Internal Trade).

Key Features:

• Brings capital, technology, and expertise into India.
• Allowed through two routes:
  • Automatic Route – No prior government approval required.
  • Government Route – Prior approval from government needed.
• Investment instruments: Equity shares, fully convertible debentures, preference shares, share warrants.

 Sectors attracting FDI:

• IT & services
• Manufacturing
• Telecom
• Construction
• Pharmaceuticals

Repatriation:

• Profits/dividends can be repatriated after paying applicable taxes.

ODI – Overseas Direct Investment

Definition:

ODI refers to an investment made by an Indian entity or resident in the equity capital or loan to a foreign joint venture (JV) or wholly owned subsidiary (WOS) outside India.

Key Features:

• Governed by FEMA (Overseas Investment) Rules & Regulations, 2022.
• ODI includes:
  • Subscription to MOA of foreign entity,
  • Acquisition of shares (directly or through SPVs),
  • Debt extended to the foreign entity.
• Indian entities (companies, LLPs) and resident individuals are eligible to make ODI.
• ODI requires reporting to the RBI via AD Category-I Bank.

Permitted Forms:

• Equity investment
• Loan to foreign JV/WOS
• Guarantees for foreign entities

FDI vs ODI – Key Differences

Aspect	FDI	ODI
Meaning	Investment into India by foreign entities	Investment from India into foreign entities
Investor	Non-resident (foreign person/company)	Resident Indian entity or individual
Governing Law	FEMA, RBI, DPIIT	FEMA (Overseas Investment Rules, 2022)
Purpose	Capital inflow to India	Capital outflow from India
Routes	Automatic & Government	Automatic & Approval based
Reporting	To RBI via AD Bank	To RBI via AD Bank (Form FC/DI/ODI)