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Foreign Direct Investment and its Benifits

Foreign Direct Investment and its Benifits

Foreign Direct Investment (FDI) :

Foreign direct investment is the amount of investment made by the foreign nationals in the domestic companies directly.It can be said as the movement of capital across many countries that allows the potential investor to participate in the business execution in another country. It helps the nations to procure enough foreign exchange so that it can meet the requirements of global exchange reserves.

FDI  In India :

Until the beginning of economic reforms by Dr Manmohan Singh in early 90s there was hardly chance for getting a foreign direct investment into India.

In India after independence ,till these reforms were placed the scenario of doing business is very complicated. Due to the numerous approvals to be obtained it is almost very difficult to start a business. But now the scenario has been changed. After the end of ‘license regime where a number of licenses should be obtained from the government for running a business’, doors for foreign investment were opened placing some conditions over the flow into some selected sectors.

Importance :

For any economy investment is the backbone for growth and prosperity. Whatever may be the investment is kept in like infrastructure, retail , insurance, financial services. Over all the types of investments foreign investment has an unique advantage by getting the foreign exchange into India which will strengthen the economy.

(1) Creates employment :

Capital and assets brought from the foreign countries help an organization to successfully run its operations by hiring the required man power which means it creates abundant employment opportunities in the nation.

(2) Brings the expertise :

Apart from the investment foreign investors will also bring the new technology, sophisticated methods of doing business operations. This helps the domestic companies to reach the global platform.

(3) Access to funds across the globe :

It helps in flow of investment from developed nations into developing economies.This would help the growing economies to shape them as a developed countries.

In case of foreign Institutional investors it involves high risk compare to the foreign direct investment. ..During the slow down of economy If the foreign Institutional investors want to exit from the country then it will result in huge outflow of foreign exchange and may lead to stock market crash.
Despite of having some disadvantages foreign direct investment helps the backwarded nations to develop.

Foreign Direct Investment

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