Foreign Direct Investment (FDI) refers to an investment made by an individual, company, or government from one country into business interests located in another country. Unlike portfolio investments, which involve only the purchase of financial assets such as stocks or bonds, FDI involves acquiring a lasting interest and a significant degree of control or influence over the foreign enterprise.

In simpler terms, FDI occurs when a foreign investor either sets up a new business operation (known as a Greenfield investment) or acquires an existing company (referred to as a Brownfield investment) in another country. This form of investment often includes not just capital inflow but also technology transfer, managerial expertise, and employment generation, contributing directly to the host countryís economic development.

In India, FDI is regulated by the Foreign Exchange Management Act (FEMA) and monitored by the Reserve Bank of India (RBI) and the Department for Promotion of Industry and Internal Trade (DPIIT). There are two primary routes for FDI inflow ó the automatic route, where foreign investors do not require prior government approval, and the government route, where investment proposals need to be reviewed and cleared by the relevant authorities.

The advantages of FDI include increased foreign capital inflows, job creation, infrastructure development, and access to advanced technologies and global markets. However, excessive dependence on foreign investment can sometimes lead to profit repatriation and reduced domestic ownership in key sectors.

In summary, Foreign Direct Investment plays a vital role in a countryís economic growth by promoting industrial expansion, enhancing competitiveness, and fostering innovation. For developing economies like India, it remains a key driver of long-term sustainable development and integration into the global economic system.