Components of FDI, Horizontal & Vertical FDI, Indirect Foreign Investment

Components of FDI:

• Equity Capital, 
• Reinvested Earnings and
• Intra-Company Loans. 

Equity capital: It is investment in equity.

Reinvested Earnings: These are retained profits on the FDI which are reinvested in the market.

Intra-Company Loans: Borrowing and Lending of funds between parent enterprises and affiliate enterprises.

TYPES OF FDI:

Horizontal FDI:- 

When a company invests in the same industry in totality  in which it operates back in its own country .

Vertical FDI:-

• When a company expands only a part of the production process to another country is referred to as Vertical FDI.
• This fragmentation of business benefits enterprises, since the production costs in other countries can be way lower than the country of origin.

Indirect Foreign Investment /Downstream Investment: 

• Investment by an Indian company (owned / controlled by foreigners) into another Indian entity is considered as Indirect Foreign Investment (IFI). 
• Indian entity which has received indirect foreign investment shall comply with the entry route, sectoral caps, pricing guidelines and other attendant conditions as applicable for foreign investment.