What is foreign direct investment? explain its importance. explain government policies regarding fdi?
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Ans.
FDI refers to an investment made by a foreign individual or a company in the producTve capacity of another country. It can be considered as themovement of capital across naTonal fronTers in a manner that allows theinvestor to have a control over the investment. Firms that provide FDI arereferred to as MNCs.
Importance of f.d.i.
The rapid growth of world population since 1950 has occurred mostly in developing countries.[citation needed] This growth has been matched by more rapid increases in gross domestic product, and thus income per capita has increased in most countries around the world since 1950.[10]
An increase in FDI may be associated with improved economic growth due to the influx of capital and increased tax revenues for the host country. Host countries often try to channel FDI investment into new infrastructure and other projects to boost development. Greater competition from new companies can lead to productivity gains and greater efficiency in the host country and it has been suggested that the application of a foreign entity’s policies to a domestic subsidiary may improve corporate governance standards. Furthermore, foreign investment can result in the transfer of soft skills through training and job creation, the availability of more advanced technology for the domestic market and access to research and development resources.[11] The local population may benefit from the employment opportunities created by new businesses.[12]In many instances, the investing company is simply transferring its older production capacity and machines, which might still be appealing to the host country because of technological lags or under-development, in order to avoid competition against its own products by the host country/company.
A foreign direct investment (FDI) is an investment in the manner of commanding ownership in the company in one nation by an existence based in the different nation. It is thus recognized from an international portfolio purchase by a perception of direct monopoly.
The beginning of the investment seems not influence the interpretation, as an FDI: the investment may be made either "inorganically" by purchasing an organization in the objective nation or "essentially" by extending the processes of actual business in that nation.
Foreign expertise can be an essential agent in developing the current technological manners in the nation. Foreign direct Investment helps in developing the character of outcomes and methods in selective sectors. It also benefits in generating jobs and decrease unemployment predicaments.
The government of India has extended to expose its market to FDI on a sector-by-sector foundation. The administration has the authorization to increase FDI frontiers up to 100% without Legislative permission, except in the field of annuities, insurance, and defense.