Sunday, 24 March 2013

What is fdi and why fdi is important for the nation's economy.

economy of india

Now a days everyone is focusing on one thing i.e FDI, every news channel and newspaper are only talking about FDI and its importance for our economy but for a common man its quite difficult to understand that What is FDI and why Government is emphasizing so hard on increasing  it.
So in this post we will try our best to solve your all questions related to FDI, here all your questions like what is FDI, what are the benefits of  FDI, will be answered.

fdi in india

FDI is Foreign Direct Investment which means investment done by a foreign company in another country. The major reasons for FDI is take the benefit of growth opportunities and to take the advantage of cheaper wages, tax exemptions in that countryUsually there are 2 methods of FDI - First, by buying a company located in that country either completely buying it out and making the company its wholly owned subsidiary or by starting a joint venture with the existing company. Second, by opening a branch for expanding its own existing business in that particular country.

Let make this topic more clear by an example-
Suppose there is a company named X Inc which is an American company, is looking to invest in India as they find good growth opportunity here and there is an Indian company named Y Ltd, which is looking for an investor. Now X Inc have got two options, first they can buyout Y Ltd either wholly or partially and secondly X Inc can itself come to India expand its business here instead of buying Y ltd.

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business opportunities

Now the another question arise that Why Foreign Direct investment is necessary for the nations economy and benefits of foreign direct investment ?

1. FDI inflow speeds the growth of GDP in the invested country as huge foreign investment injects huge cash in the nation's economy which ultimately give a strong boost to the GDP growth rate.

2. Foreign Investment brings the foreign currency to that particular country in which investment is done and we all know how much valuable Foreign currency is ? especially for a country like India which spends more than 65% of its foreign currency in importing oil.

3. FDI increases the employment in the invested country as with high FDI, the growth rate of the industrial sector of that country increases as a result large employment opportunities will be created.

4. Foreign Direct investment decreases the expenditure of Government as foreign companies with huge cash reserves, themselves invest in the backend infrastructure of that country in order to improve it according to their business needs and these multinationals also funds various social programs in the country they do business thus reducing the Government expenditure.

5. When Foreign companies comes to do business in a particular country than along with their huge cash, they also brings their highly developed technology and R&D which they has to share with the companies located in that country either for free or for some royalty fees which ultimately boost the productivity of the industrial sector of that country.

We hope this post defiantly clear your doubts, do share your views with us and also share this post with your friends.

Image: FreeDigitalPhotos.net

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