What is the difference between an FDI and an ODI?

February 24, 2022

What is the difference between an FDI and an ODI?

Foreign Direct Investment (FDI) is a cross-border investment, where a firm located in one country invests in a business or corporation in another country, to establish a lasting interest.

Simply put, when a non-resident of a certain country invests in the shares of a resident company, it is referred to as an FDI. For instance, Japanese automaker Honda set up a manufacturing plant in India.

On the other hand, Overseas Direct Investment (ODI) refers to an investment made by an Indian entity outside India, by way of a Joint Venture (JV) or a Wholly-Owned Subsidiary (WOS) either under the automatic route or through the Government-approval route. For example, Tata Steel’s US$ 1 billion investment in a Wholly-Owned Subsidiary in Singapore.

Apart from the basic difference, the other important difference between an FDI and ODI is:

  • While an FDI will bring in net inflows by non-resident investors into India, an ODI will result in a net outflow by Indian residents to external economies
  • For instance, when Honda sets up a manufacturing unit in India, the Japanese company will invest in the Indian economy. However, when Tata Steel sets up its Singapore vertical, the conglomerate will make its investment in the South East Asian economy.

Both an FDI and ODI allow investments either under the automatic route or through the approval route.

According to the Reserve Bank of India’s data, India Inc.'s overseas direct investments doubled to US$ 2.8 billion in June 2021 alone. Meanwhile, India attracted Foreign Direct Investment of US$ 22.53 billion in the Apr-June quarter of FY 2021-22.