Foreign Direct Investment is a direct investment into production or
business in a country by an individual or a company of another country.
There is a rapid growth of population in developing countries after the Second
World War. This increase in the population growth also has increased in gross
domestic product, and thus income per capita has increased in most developing
countries around the world. The war affected countries with complex problems
with the other countries such as Haiti,Somalia and Niger do not show much of
the increase in GDP per capita.
The types of FDI are
Inward foreign
direct investment
Outward foreign
direct investment
These both result in a net FDI in flow and “stock of foreign direct
investment”, which is the cumulative number for a given period. Direct
investment excludes investments through purchase of shares. FDI is one example
of international factor movements.
FDI would allow India to secure into India, which would increase India’s
capital base significantly high. If India can attract FDI in the big picture it’s
nothing but positive things. China’s important growth factor was FDI.
Foreign investment was introduced by Manmohan Singh under Foreign
Exchange Management act in 1991. As of now, it has become the keen issue for
his government to take the disagreement with FDI by the other parties. India did
not allow overseas corporate bodies [OCB] to invest in India. India imposes a
protection on equality holding by foreign investors in various sectors, current
FDI limit in aviation sector is maximum 49%.
Benefits of FDI:
- It causes a flow of money into the economy which simulates economic activity.
- Employment will increase, which in turn increases the revenue for the government.
- It will make the domestic producers to work and give a better product efficiently.
- The government of India experiencing increasing levels of FDI will have a greater impact at international summits as we have more stakeholders in it.
- Farmers will have an advantage , when the supermarkets directly contact the famers thus eliminating the middleman.
Against FDI:
- Inflation may increase slightly.
- FDI in retail will drain out the country’s share of revenue to foreign countries, which may cause negative impact on India’s economy.
- Supermarkets will establish their monopoly in the Indian market. Due to supermarkets fine tuning and higher accessibility they will be able to buy goods at lower prices and therefore will be able to sell at lower prices to consumers. This will result in closing of many small retailers.
- Improper time of allowing FDI in retail in India because of lack of infrastructure.
Big business will monopolize
their respective markets in India by destroying all small competitors, and then
they will be in complete control of prices, so it will ultimately come at a
cost. Also, after monopolizing, product quality will stop mattering, since all
small businesses whose products competed in quality would be destroyed. Also,
vegetables and fruits that will be imported from outside India will not be
fresh and stale due to long distance transportation and constant refrigeration.
It is assumed that FDI will play a vital role in the core sectors as a
source of capital, management, and technology in countries of transition
economy. India has also opened up its economy and allowed many Multi-National
Enterprises in the core sectors such as chemicals, transport, Power and Fuels.
It is also motivated by recent political
developments in India following the opening of sectors like insurance and
telecommunication with increased financial gap for the private players.
Foreign firms may have technology that India has not acquired. On the
other hand FDI brings those technologies to India much quicker.
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