Greenfield and Brownfield investments
Greenfield investment is investment in new plants. It is establishing new production capacity by an investor or company. On the other, Brownfield investment is an investor investing in an existing plant. Brownfield investment is mainly made through merger and acquisitions.
Green field and Brownfield FDI
Applying the same criteria, Greenfield FDI in India is investment by a foreign investor in fresh production facilities. It is a situation where an MNC starts a new venture in India by constructing new operational facilities.This new production capacity creation will bring new physical assets (like plants and machineries), creates fresh employment and adds to more production of the concerned good. Often Greenfield FDI has a merit that it brings superior technology by the MNC.
Brownfield FDI is investment made by a foreign company in existing production arrangements. An important form of Brownfield investment is merger and acquisition by foreign MNCs in India. Here, a domestic company is taken over by the MNC. Greenfield FDI makes additional production capacity, whereas Brownfield FDI is purchase of existing production capacities. The latter is just a transfer of ownership of existing firm from a domestic entrepreneur to a foreign one.
Disadvantage of Brownfield FDI as a source of investment is that it doesn’t create expansion of production capacities or Employment generation etc.