The Foreign Direct Investment leading to the economic boost, but the risks might come along!
Foreign Direct Investment (FDI) :
A Foreign Direct Investment (FDI) is an investment as a controlling proprietorship in a business in one country by an organization situated in another country. It is consequently recognized from a foreign portfolio investment by an idea of direct control.
The region from where the investment began does not affect the actual definition as the investment might be made either “inorganically” by purchasing an organization in the objective nation or “organically” by extending the tasks of a current business in that country.
Usually, these types of investments happen when an investor tries to start with the services that are provided in foreign countries to come into existence or wish to establish their companies for ownership in other countries as well.
Such investments like the Foreign Direct Investments are usually present in countries with open economies with the proper availability of efficient and skilled workers which would contribute to the growth of such companies.
Such investments are not only good for monetization or profits but also act as the builders of several assets within the former country such as the development of human skills, ideas, technology, and understanding of several other things.
India- The top rank holder in the Greenfield FDI ranks
FDI has been established in India for a long time which is also a significant source of monetary assets and economic development. During the time of the 1991 crisis in India, the FDI came into existence and genuinely boosted up the economy of the country with all its efficiency. Presently, India also holds the first rank globally in the Greenfield FDI ranks.
There also are a few restrictions related to FDI in India in many sectors such as the gambling sector, lottery, chit fund investment, tobacco sector, the real estate sector, and the agriculture sector excluding a few sub-categories like horticulture and fisheries along with many others.
One of the official statements also stated that the steps that were taken on the government front related to the Foreign Direct Investment and its policy updates proved to be of great significance and boosted the FDI flows into India by a huge amount. According to a report India acquired about 6.24 billion dollars of FDI inflow in April 2021 which was about 38% every year.
FDI enhancing the presently existing assets
The Foreign Direct Investment or FDI could indeed prove to be extremely beneficial if used in the right way and employed with several other policies. It can also enhance the country’s economic statistics to a great level which might also result in a beneficial environment for both investors and the local companies.
It is also a great source of employment as new jobs would be generated if a company or investor decides to set up their organizations in other countries which will further create and develop more opportunities and openings for the unemployed people. This would have a significant boost in the income of people and would thus provide more buying power which would definitely in return lead to the increment in the economic structure of India.
Drawbacks of the Foreign Direct Investment
Speaking of what drawbacks it could bring to a country, the reduction in domestic investment stays at the top. When one would focus on foreign investment the capacity of domestic investment would automatically decrease, losing the motivation of the citizens.
There is also a very high risk of instability in such an investment as there is no guarantee of stable government or political establishment in any other country. The loss that any change in the political establishment of the other country would cause you, would be extremely significant and negative.
The FDI is also a reason which somehow affects the exchange rates benefiting one of the two companies in all the countries that they belong to and causing a negative impact on the other. Most of India’s population is struck by poverty or comes under the middle class and hence it would be extremely difficult to gather a lot of investment which is the must for FDI. In case someone decides to proceed with Foreign Direct Investment they must be well prepared with the amount of money that they are willing to put in.
Domestic currency value depletion due to the FDI in South Asian countries
The fact that Foreign Direct Investment has benefitted several countries by providing an economic boost and assistance, cannot be denied. But the drawbacks and negative impacts that it had created at times cannot be hindered too. Citing an example and instance of the drawback that FDI has brought, the exchange crisis and issues remain untangled and unresolved.
It was in the year 2000 that the South Asian countries had to go through exchange distress due to the existence of the FDIs. The FDI did not only contribute to inflation but also the significant decrease in exports which further contributed to the depletion of the domestic currency value.
However, if any country is willing to experience an economic boost then Foreign Direct Investment would be a great idea. Not to forget that each and everything that has drawbacks comes along with its positives, which might be considered quite risky but could be taken in order to experience greater success in the near future.
Nothing that has some great advantage would come without the negatives. However, everything and anything must be considered before one takes a decision relating to investment into something big, especially like the FDI for countries.
However, Foreign Direct Investment is a large-scale investment and cannot be performed by other individuals. It is the countries who play the major role and the large spread companies who wish to expand their business and revenues with the help of the same. It has been proven to be quite beneficial for India by providing an economic boost for a long time and continues to be in existence.
Edited by Aishwarya Ingle