INTRODUCTION No country in the world is self sufficient . Each nation or even a state or a city is dependant on other regions. So for fulfilling the needs of each other all the nation of the world has come together. The government of all countries do not have self sufficient funds or finance. Any government in today’s world can’t rely on loans from other nation or other bank. This is because it create debt only. In today’s world the largest need is of FDI FDI MEANS Foreign Direct Investment.
Meaning Direct investment from one country to the other . FDI: Net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, long and short-term capital. FDI is viewed as a major stimulus to economic growth in developing countries. Its ability to deal with two major obstacles, namely, shortages of financial resources and technology and skills. Only a few of these countries have been successful in attracting significant FDI flows.
Importance of FDI It is now a competitive requirement that businesses invest all over the globe to access markets, technology, and talent. It includes corporate activities such as businesses building plants, subsidiaries in foreign countries, buying controlling stakes or shares in foreign companies. It facilitates globalization of economies. It is conventionally thought of in terms of branch plant or subsidiary company operations that are controlled by parent companies based in another country.
Determinants of FDI Size of market : large, medium, small Openness : economy is open or close Labour cost and productivity: high or low Availability of natural resources Government policies : supportive or not Infrastructure: have or not. Privatization
Objectives of FDI Expansion Strategy : companies start investing because they want to make their product world available. New Source of demand : In many situations growth is restricted in the home country because of intense competition or due to unfavorable market conditions. Low cost production : In many countries the cost of production is low because of raw materials, availability of man power etc. Economies of scale : if a large scale of a production is done than the ratio of wastage comes down and the cost reduces.
Factors influencing FDI Political Climate of the country: If climate is favorable than there is more FDI and vice versa. Government policy: if government supports business there are more FDI Business concession: if provided more FDI Trade and tariffs policies: if favors more FDI Infrastructure:available than mare FDI Market: if market is large more FDI’S
Foreign company’s bring superior technology Foreign investments increases competition in the host. Foreign investment typically results increase in domestic investments Foreign company can aid in bridging a host country’s foreign exchange gap. Benefits of FDI
Problems of FDI Local trader’s looses their business: In front of MNC’s the local trader in market cannot survive for a long period Unemployment: This is because Poverty : local traders would loose their business through Recession in foreign market would bring recession in host country Exploit the consumers. Pollution Inequality
INDIA BEFORE FDI (1948 – 1990) India got its independence in the year 1947, in which the government of India started conservative policy for FDI which disallowed FDI to invest in India. This was because the traditional thought of losing the country’s independence was one of the major concern for the political leaders of the country. This is the reason for which the country did not progress a lot in this period and the progress was mainly in agricultural sector which did not earn India a large amount of foreign exchange.
In 1990 – 91India was suffering financial crisis because of its conservative policy.
So the prime minister of India opened the economy of the country for FDI’s known as LPG.
Liberalization Privatization Globalization
This was the period which give boost to Indian economy.
India After Introducing FDI (1991And onwards) After introducing FDI Indian sector started having income not only from agricultural but also from service and industrial sector. It also started having foreign technologies and foreign investment which helped Indian economy to rise. It also helped in reduction of price of the goods which helped the consumers to buy a better product Eg. Electronic goods All service sectors were in perfect boost after the introducing of FDI.
Comparisons of FDI in India and China INDIA In India the government is democracy. The labour charges are cheaper. Experts says FDI are more interested in investing in India. In India there is a lot of paper work but the Government to a certain extent has given many opportunities to the FDI. CHINA In China the government is communist. The labour charges are quite higher than in India. Experts says FDI are not so interested as in investing in India. In China the paper work is reduce to the largest extent but there is lot of Government restrictions.
FDI will give boost to Indian economy if proper uses are made i.e. introducing FDI in those sectors where India has not expanded and is lack of technology. This will increase the competition in the market in which customer would get the customers a good quality product at reasonable price. Introduction of the modern technology, superior quality and designs of infrastructure. Backward area would progress a lot which would benefit India to be a developed country from developing country. Rise in national income would give to rise GDP. Conclusion