FDI Full Form

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.

Sl. No. Sector Limitations(%)
1. Print Media  26%
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

Advantages

  • 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.

Disadvantages

  • 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.

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