What is FDI, Advantages of FDI and Disadvantages of FDI: All you want to know about Foreign Direct Investment. My this article is about the Foreign direct investment which is been increasing day by day, as the foreign market players are given encouragement to start up their business in India, destroying the current market players of India. There are advantages and disadvantages for foreign direct investment. FDI has been increased and encouragement is increasing due to Indian govt. So we shall discuss in detail the same topic. Now check more details regarding “What is FDI, Advantages of FDI and Disadvantages of FDI” from below….
What is FDI, Advantages of FDI and Disadvantages of FDI
Foreign Direct Investment (FDI):
Meaning- Foreign direct investment is the inflows in cash as a part of investment for acquiring the management control in an enterprise which is operating in the country than that of such investor. In simple terms, investment directly made by a foreign company business in another company situated in the other country.
Reason – The FDI may be for many reasons such as
- Form of Business Expansion in the firm situated in the other country for more growth
- May be for buyout of the whole company
- Incorporation of a wholly owned subsidiary
- Merger or acquisition of different industry enterprise
- Acquiring shares of the related enterprise
It was first introduced by then finance minister Dr. Manmohan Singh in 1991 in the form of Foreign Exchange Management Act which would lead to increase in the domestic capital cash inflows in the country and due to this the economic growth of the country will also increase.
Must Read – What’s the Difference Between FDI and FII?
Advantages of FDI
- The first and the most effective advantage of the FDI is that employment will increase to a great extent and due to which the growth of the country will be achieved.
- The current producers in the country will get a boost for the better produce quality to be made.
- The government will have better image at the global point of view for the country as a whole.
- It will create the flow of money in the economy which would get the economic activity among the businesses.
- It will create the competition among the market and will result in better quality product to be created in the market and the customers will get better price for the customers.
- The infrastructure created would be of the global and international level which would make available the use of technology which would in turn result in better product.
Disadvantages of FDI
- Due to the foreign direct investment in our country, the greatest disadvantage is that inflation would increase due to the foreign influence.
- If one industry is dominated on the one separate industry than it will dominate to that industry and due to market dominance it will not result in growth rather there would be unbalanced economy.
- Domestic market players would suffer due to the new entrants in the market which would affect their selling power.
- The product quality will now not be mattering factor and they would now become the irrelevance for the customer to check the product details.
Who can be considered as foreign direct investor??
The investors which can be considered as foreign investor if incorporated and established outside India may be Foreign Venture Capital Investor, Foreign Institutional Investor, body corporate outside India, or any nonresident entity
Routes for entry in Investments:
1. Automatic Route – This route means any investment which do not require prior approval from the Government of some of the sectors which do not require approval are Agriculture, Trading, E-commerce, natural gas, manufacturing etc.
2. Governmental Route – Investment can be made only with the prior approval of the Government. The industries which are not covered by automatic route are covered by Governmental route.
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