FDI is when a foreign country assumes controlling ownership of a business or organisation in another country, which in turn proves advantageous for the country in which the investment occurs. Find out the advantages of FDI below.
If you’ve ever heard your parents or grandparents tell you stories from their youth, you would have come to one conclusion – back then things were affordable. They could eat a full meal for under Rs. 3, watch movies at Rs. 2 and buy almost everything in Rs.100. But things are not the same anymore. Today, a bag of chips costs Rs. 10 and you get more air than chips. Ordering food can put a real dent in your savings, and you have to think twice before anything. Yes, inflation is a reality you cannot ignore, and the only way to beat it is to invest when you can. This article illustrates foreign direct investments and its advantages.
What is Foreign Direct Investment?
Foreign Direct Investment, often abbreviated as FDI is defined as an investment made by an individual or an organisation in one country into a business located in another. FDI typically occurs when investors establish foreign business operations or when they acquire foreign business assets in a company, away from their country of residence. With FDI, an international company is directly involved in everyday operations in another country. Apart from money, FDI brings with knowledge, technology, skills and employment.
What are the advantages of FDI?
The following are the key advantages of foreign direct investment in India
1. FDI stimulates economic development
FDI in India stimulates large-scale economic growth. It is the primary sources of external capital as well as increased revenues for a country. It often results in the opening of factories in the country of investment, in which some local equipment – be it materials or labour force, is utilised. This process is repeated based on the skill levels of the employees. Large-scale employment results in people leading better lives and improves their standard of living. Such people also start paying taxes, which are further invested in the development of the nation.
2. FDI results in increased employment opportunities
FDI increases employment opportunities. As FDI increases in a nation, especially a developing one, its service and manufacturing sectors receive a boost, which in turn results in the creation of jobs. Employment, in turn, results in the creation of income sources for many. People then spend their income, thereby enhancing a nation’s purchasing power.
3. FDI results in the development of human resources
FDI aids with the development of human resources. The employees, also known as the human capital, are provided adequate training and skills, which help boost their knowledge on a broad scale. But if you consider the overall impact on the economy, human resource development increases a country’s human capital quotient. As more and more resources acquire skills, they can train others and create a ripple effect on the economy.
4. FDI enhances a country’s finance and technology sectors
The process of FDI is robust. It provides the country in which the investment is occurring with several tools, which they can leverage to their advantage. For instance, when FDI occurs, the recipient businesses are provided with access to the latest tools in finance, technology and operational practices. As time goes by, this introduction of enhanced technologies and processes get assimilated in the local economy, which make the fin-tech industry more efficient and effective.
Apart from the above points, there are a few more we cannot ignore. For instance, FDI helps develop a country’s backward areas and helps it transform into an industrial centre. Goods produced through FDI may be marketed domestically and also exported abroad, creating another essential revenue stream. FDI also improves a country’s exchange rate stability, capital inflow and creates a competitive market.
Like any other investment stream, there are merits and demerits of FDI as well, which are mostly geo-political. For instance, FDI can hinder domestic investments, risk political changes and influence exchange rates. However, in comparing FDI advantages and disadvantages, it is quite apparent that the benefits outweigh the cons. If you wish to know more about FDI in India, reach out to an Angel Broking Expert.