FOREIGN DIRECT INVESTMENT
The full form of FDI is Foreign Direct Investment.The FDI means “cross border investment made by a resident in one economy in an enterprise in another economy, with the objective of establishing a lasting interest in the investee economy.
FDI is also described as “investment into the business of a country by a company in another country”. Mostly the investment is into production by either buying a company in the target country or by expanding operations of an existing business in that country”. Such investments can take place for many reasons, including to take advantage of cheaper wages, special investment privileges (e.g. tax exemptions) offered by the country.
Reasons of Seek FDI -
(a) Domestic capital is inadequate for purpose of economic growth.
(b) Foreign capital is usually essential, at least as a temporary measure, during the period when the capital market is in the process of development.
(c) Foreign capital usually brings it with other scarce productive factors like technical know how, business expertise and knowledge.
Major benefits of FDI-
(a) Improves forex position of the country.
(b) Employment generation and increase in production .
(c) Help in capital formation by bringing fresh capital.
(d) Helps in transfer of new technologies, management skills, intellectual property.
(e) Increases competition within the local market and this brings higher efficiencies.
(f) Helps in increasing exports.
(g) Increases tax revenues.
Reasons of FDI is Opposed by Local People or Disadvantages of FDI -
(a) Domestic companies fear that they may lose their ownership to overseas company.
(b) Small enterprises fear that they may not be able to compete with world class large companies and may ultimately be edged out of business.
(c) Large giants of the world try to monopolise and take over the highly profitable sectors.
(d) Such foreign companies invest more in machinery and intellectual property than in wages of the local people.
(e) Government has less control over the functioning of such companies as they usually work as wholly owned subsidiary of an overseas company.
Brief Latest Developments on FDI (all sectors including retail):- 2012 – October: In the second round of economic reforms, the government cleared amendments to raise the FDI cap -
(a) in the insurance sector from 26% to 49%.
(b) in the pension sector it approved a 26 percent FDI.
Now, Indian Parliament will have to give its approval for the final shape,"
2012 - September : The government approved the-
(a) Allowed 51% foreign investment in multi-brand retail.
(b) Relaxed FDI norms for civil aviation and broadcasting sectors. – FDI cap in Broadcasting was raised to 74% from 49%.
(c) Allowed foreign investment in power exchanges.
2011 – December :
(i) The Indian government removed the 51 percent cap on FDI into single-brand retail outlets and thus opened the market fully to foreign investors by permitting 100 percent foreign investment in this area.
