Foreign Direct Investment is the full form of FDI.
FDI is the process of a company/individual/company/organization from one country investing directly in a physical asset of a company/organization from another country.
If someone wants to start or build their own business, but lacks the necessary cash, he will have to borrow from someone else or take out a bank loan.
Similarly, the host firm receives funds from foreign investors in order to run or grow their business properly, while the investor gains ownership and a profit portion of the company.
Medicines, e-commerce, electronics, and information technology, for example, are important sectors in which investors invest in a domestic firm.
Purpose of FDI
- Foreign investors invest in various sectors like the automobile sector, agriculture sector, mining sector, etc., which creates job opportunities and small businesses for domestic citizens.
- The more investment a country receives, the more tax money it generates.
- To establish positive relationships between foreign and domestic countries by forming partnerships with organizations.
Different Limitations on FDI
Foreign direct investment restrictions in India vary by sector.
|2.||Insurance, Infrastructure Company in the Securities Market, Broadcasting Content Services||49%|
|3.||Multi Brand Retail Trading||51%|
|4.||Private Securities Agencies||74%|
|5.||Agriculture and Animal Husbandry, Plantation, Mining, Petroleum, and Natural Gas||100%|
|6.||Chit Fund, Gambling, and Lottery business.||It is completely banned.|
Types of FDI
Green-Field Investment: Green-field investment occurs when a foreign country invests in the physical assets (industry, plant, etc.) of a local country.
Foreign Portfolio Investment: When a foreign country invests in a liquid asset such as the local stock market, this is referred to as foreign portfolio investment.
Advantages and Disadvantages of FDI
- Establishes employment opportunities by establishing various industries or plants.
- The parent firm introduces new technology and investment to the domestic market, which helps to advance the country.
- To compete with foreign investors, the domestic company makes significant improvements.
- In the face of large-scale industries, local shops and businesses (MSMEs) suffer.
- Low tax rates are intended to attract multinational corporations while resulting in a tax loss for the government.