Overseas Direct Investment (ODI) refers to the investment made by a resident Indian entity or individual in a foreign business entity, typically through establishing a joint venture (JV) or a wholly owned subsidiary (WOS). It allows Indian investors to expand their global presence, access new markets, and diversify their business operations. ODI plays a crucial role in strengthening Indiaís participation in international trade and enhancing foreign exchange earnings.

Under the Foreign Exchange Management Act (FEMA) and the Liberalised Remittance Scheme (LRS), the Reserve Bank of India (RBI) regulates and monitors ODI transactions. Indian companies can make such investments by purchasing shares of foreign entities or contributing to their capital. However, these investments must comply with RBIís prescribed limits, sectoral caps, and reporting guidelines. Individuals can also invest in foreign companies up to the limit of USD 250,000 per financial year under LRS.

Permitted financial commitments under ODI include equity participation, loans, guarantees, and creation of a pledge or charge on assets. However, speculative or leveraged investments, such as those in real estate or portfolio trading abroad, are restricted to prevent financial risk exposure. All transactions must be routed through an authorized dealer (AD) bank to ensure regulatory compliance.

For businesses, ODI offers benefits such as market diversification, access to advanced technologies, and global brand visibility. It helps Indian firms integrate with global supply chains and enhance competitiveness. On the other hand, risks such as foreign exchange volatility, political instability, and regulatory differences must be carefully assessed before investing abroad.

In summary, Overseas Direct Investment serves as a strategic tool for Indian investors seeking long-term global growth, provided it aligns with RBI guidelines and prudent financial planning.