FDI???????????

What is Foreign Direct Investment (FDI)?

Instead of investing in local businesses, putting money in a company functioning or incorporated in another country is foreign direct investment. For the country which is attracting the investment, the investor is a considered a "foreign direct investor". The foreign direct investor can have influence in the management of the companies invested in. 

The foreign direct investor may have a varying amount of stake in the invested company - stakes can be as low as 10% or may also cross 49% of the shares or stock ownership. Some countries may have caps on the amount of equity a foreign direct investor may hold. For example, the Reserve Bank of India allows foreign equity only up to 50% in investment in specific mining sector in India. It totally forbids FDI in mining of iron and manganese.

The foreign direct investor seeks to have a controlling stake in the entity invested. This distinguishes it from an ordinary foreign investment.

The flow of capital from the foreign investor to the company invested in becomes an FDI inflow. FDI has three parts - equity capital investment, reinvested earnings and intra-company loans.

Advantages of Foreign Direct Investment

In the global economy today, we see many developing countries competing for foreign direct investment. FDI is said to be an important factor for spurring the development of a nation. 

Let's take a look at some advantages of foreign direct investment to a host country:

• Integration into global economy - A developing country, which invites FDI, can gain a greater foothold in the world economy by getting access to a wider global market.
• Technology advancement - FDI can introduce world-level technology and technical know-how and processes to developing countries. Foreign expertise can be an important factor in upgrading the existing technical processes in a host country. For example, the civilian nuclear deal between India and the United States would lead to transfer of nuclear energy know-how between the two countries and allow India to upgrade its civilian nuclear facilities.
• Increased competition - As FDI brings in advances in technology and processes, it increases the competition in the domestic economy of the developing country, which has attracted the FDI. Other companies will also have to improve their processes and products in order to stay competitive in the market. Overall, FDI improves the quality of a products and processes in a particular sector.
• Improved human resources - Employees of a host country in which there is an FDI get exposure to globally valued skills. The training and skills upgradation can enhance the value of the human resources of the host country.

The advantages of foreign direct investment to the investor includes access to a larger market in the host country, ability to tap the potential of a cheap and skilled labour, making use of resources in the host country and pursuing growth goals by diversification and optimising costs.

Advantages

• Increase economic growth by dealing with different international products
• 1 million (10 lakh) employment will create in three years - UPA Government
• Billion dollars will be invested in Indian market
• Spread import and export business in different countries
• Agriculture related people will get good price of their goods

Disadvantages

• Will affect 50 million merchants in India
• Profit distribution, investment ratios are not fixed
• An economically backward class person suffers from price raise
• Retailer faces loss in business
• Market places are situated too far which increases traveling expenses
• Workers safety and policies are not mentioned clearly
• Inflation may be increased
• Again India become slaves because of FDI in retail sector