The FDI stands for Foreign Direct Investment and means the investment which is made by a non-resident in a country with the intention of a growing interest in the economy in which it is invested. FDI can take place, both in a private as well as public organization, depending upon the investee country’s laws.
Why do countries attract FDI?
For a developing economy, there is always a gap in requirement of funds from within the country and thus to fill this gap, funds from other countries are invited and promoted. In simpler words, the funds available in the country are inadequate and thus there is always a need for investment from foreign investors. Along with the capital, FDI also brings a lot of enhanced technical know-how which makes this entire phenomenon a win-win situation for both the parties.
The major advantages of FDI
One who has studied finance would not deny the fact that there are many benefits of FDI for any country. It certainly gives and opportunity to the economy to improve its foreign exchange and thus stand on a more stable financial platform. At the same time, FDI directly increases the number of employment available in the country. With every FDI coming into the country, new and new jobs would be created.
FDI brings fresh capital and helps the economy build a healthy capital along with helping the domestic market learn better technology, intellectual property and management skills. In short, FDI is a means for any developing economy to keep abreast with the latest in the world. Nevertheless, FDI increases the exports directly and helps economy generate higher tax revenues.
Disadvantages of FDI?
FDI comes with various benefits for any economy, however, is a fear to the local businesses. Domestic companies see it as a threat to their business, since they find themselves nowhere to compete with global companies. They surely would edge out somewhere in their businesses. One of the major drawbacks of FDI, however, is that larger companies monopolize the market and make it quite tougher for the small enterprises, leaving no room for budding companies. Moreover, government has lesser controls over these global giants as they work as a subsidiary of a global overseas entity.
Procedures for bringing Foreign Direct Investment
There are two broad categories under which FDI could be brought in India, namely Automatic Route and Government Route. The Automatic route defines that FDI could be brought within the country through any individual or firm without any prior approval from government authorities or Reserve Bank of India. The government route comes in picture for bigger investments where any government agency or Public sector undertaking is involved.
FDI is a great thing for countries whose economy is in developing stage. It has its own merits and demerits. However, if it is channelized in a proper way by the government keeping in mind the future of local industrialist, it could do wonders in any economy.
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