Page 562 - SSB Interview: The Complete Guide, Second Edition

Brownfield investment

The first strategy is the ‘Greenfield investment’ in which a company has to
set up a new factory and related assets in another country and then start
operations. The second strategy is ‘Brownfield investment’ in which the

investing company acquires a foreign company and starts operations. Also,
FDI is classified into two:

Horizontal

Vertical

In the Horizontal type, a company invests in the same type of business in

another foreign country as they operate domestically. Whereas in the Vertical
type, a company invests in a business that acts as the supplier or distributor
for their parent company.

FDI in India

In 1991, the Foreign Exchange Management Act (FEMA), under the
leadership of the Finance Minister Dr Manmohan Singh, paved the way for
attracting foreign investment to India. Since then, FDI is a major source for

developing the economy of India. In 2014, under the ‘Make in India’
initiative, the government increased the limit on investment from 26% to
49% in the defence sector to attract foreign investors. It liberalised 25 sectors,

including the defence sector. It also included manufacturing of Small Arms
and Ammunitions, covered under the Arms Act 1959. In April 2015, the FDI
inflow increased up to 48% when compared to the previous years. This made

th
th
India leap from 15 rank in 2013 to 9 rank in 2014 in terms of FDI inflow.

Progress of FDI in Defence Sector

The defence sector is the least beneficial in terms of FDI. According to
sources, 70% of military requirements are met through imports, whereas only
30% is domestically manufactured. The total inflow of investments through

FDI was about $4.94 million from 2001 to 2014. The total cumulative FDI,