What is Foreign direct investment (FDI), FDI in India, FDI

Foreign Direct Investment (FDI) plays a very significant role in the development of any nation, especially underdeveloped countries. India is the underdeveloped economic country and its fact that these economy does not have the position level of saving and income in order to meet the required level of investment needed to sustain the growth of the economy. In that case, foreign direct investment plays an important role in bridging the gap between the available resources or funds. It plays an important role in the long term development of a country, it is not mean that it is only sourced to generate the capital it's also promoted to enhancing the competitiveness of the domestic economy through the transfer of technology, strengthening infrastructure, increasing productivity and generating new employment opportunities. In India, FDI is considered as a developmental tool, which helps to achieve self-reliance in the various sectors' development as well as economic growth. 
      The Government of India's policy towards FDI was a near "open door" policy during the 1950s. It becomes restrictive and selective in the late 1960s and 1970s. The 120 policy experienced gradual and partial liberalization in the 1980s and fully-fledged liberalization since 1991 along with medium-term adjustment and long term structural reforms introduced in India. Thus, the evolution of policy regarding FDI in India. 

       During the 1950's India pursued an open door FDI policy. It was acknowledged that foreign investment the official position on foreign investment was articulated by Jawaharlal Nehru, the first Prime Minister of independent India on April 6, 1949, when he recognized foreign capital as an important supplement to domestic savings for facilitating national economic and technological progress. Foreign investors were allowed full freedom of repatriation with the assurance of compensation in the unforeseen event of nationalization. 

        The foreign exchange of 1957-58 led to further liberalization of the government's attitude towards FDI. The core objective of the foreign capital policy was that the control of industrial undertakings should remain in the Indian hands. However, the government had granted permission in certain cases for allowing the establishment of exclusive foreign enterprise. Foreign capital was preferred in specific areas that required new technology. Government also granted tax concessions to foreign enterprise and streamlined industrial licensing procedures to accord early approvals for foreign collaborations. In the case of 100 percent export of output, foreigners were allowed to establish industrial units. To attract more foreign investment into the country. India offered many incentives and concessions to foreign investors and set up the India Investment Centre in 1961 to promote foreign investment in India. 

         The government policy on FDI turned restrictive since the late 1960s. The main motive behind the adoption of a restrictive attitude towards FDI was the need to protect growing Indian industries from the threat imposed by private capital in India. It was felt that foreign sophisticated products. will pose a challenge for upcoming Indian industries, not as perfect as their foreign counterparts. The restrictions kept on increasing with the introduction of the MRTP act in 1969 which brought all foreign companies under control.  

      In 1988, all industries, except 26 industries specified in the negative list, were exempted from licensing. The exemption was, however, subject to investment and location limitations. The automotive industry, cement, cotton spinning, food processing, and polyester filament yarn industries witnessed modernization and expanded scale of production during the 1980s. The Industries  Policy Statement of 1980 focused attention on the need for promoting competition in the domestic market, technological up-gradation, and modernization. 

        India introduced economic reforms in July 1991. The reform measures also included the liberalization of the FDI regime. Many steps were taken to encourage foreign investment. The Industrial Policy Statement of 1991 laid stress on the full exploitation of foreign investment opportunities. In order to invite foreign investment in high priority industries, requiring large investment and advanced technology, it was decided to provide approval for foreign direct investment up to 51 percent foreign equity in such industries (Statement on Industrial Policy, 1991). 

       "Foreign Direct Investment" (FDI) inflow made its entry during the year 1991-1992. FDI introduced by Dr. Manmohan Singh and his government. At that time Dr. Manmohan Singh was finance minister. When India had faced the problem of deflation at that time India had to need a huge amount of money for overcoming deflation and economic development. Foreign investment plays a significant role in the development f any economy like India. Many countries provide many incentives for attracting foreign direct investment. The need for FDI depends on saving and investment rates in any country. Foreign Direct Investment acts as a bridge to fulfill the gap between investment and saving. In the process of economic development foreign capital helps to cover the domestic saving constraint a provide access to the superior technology that promotes efficiency and productivity of the existing production capacity and generate new product opportunity and creat huge amount of employment. In 2015 India overtook China and the US as the top destination for Foreign Direct Investment. In the first half of 2015, India attracted investment of $31 billion compared to $28 billion and $27 billion of China and the US respectively.

Benefits of FDI

  • Improve the forex position of the country.
  • Employment generation and increasing production.
  • Helps in capital formation by bringing fresh capital 
  • Helps in the transfer of new technologies management skills, intellectual poverty.
  • Increase competition within the local market and this prices higher efficiencies.
  • Help to increase exports
  • Increase tax revenue.  

Why the World is looking towards India for Investment
         India is the 3rd largest country of the world in terms of purchasing power of money (PPP) and values look attractive to the world for FDI even the Government of India has been trying hard to away with the FDI coups for the majority with another country. And also India is the second-largest country in the world in population. and in India, approximately 62% young generation in living that's why another country has been attracting towards India for investing their money. 


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