You must have heard more than a lot about Foreign Direct Investment (FDI). In this section, we will discuss the reasons that explain why Foreign Direct Investment is so important for any nation (India here) and enumerate its positive side. Before 1991, India was a socialist economy and was totally confined within its boundaries only. All that raised here was buried here only, and there was no (absolutely no) interaction with those outside the walls.
What crossed the boundaries was only humans and that too consisted of politicians only. Due to the reason, the economy of India had reached a stage of stagnation. Thanks to our then Finance Minister Dr. Man Mohan Singh that he contributed some of his talents to make India a better country and introduced Foreign Direct Investment in the India economy. And thus changed the whole phase of development. And as a result India is the hottest FDI destination. It’s time for you to explore the shades of Foreign Direct Investment and thus let us understand the advantages of Foreign Direct Investment.
Table of Contents
The home country gets the benefit from Foreign Direct Investment with the creation of more employment opportunities. Foreign Direct Investment results in a stretch of the industrial and manufacturing sectors, hence providing more employment to the hosts. Advantages of foreign direct investment
The foreign company is superior in terms of technology and research work. With their advent, they bring to the host better and more efficient technology, enhancing both the skills as well as expertise and thus keeping them up to date in all aspects.
Rise in disposable income
With the rise in investment and greater employment, the economy automatically grows leading to a considerable rise in GDP further leading rise in the disposable income in their hands. So remember, via Foreign Direct Investment, you are helping the other country get rich and hence enhancing their standard of living. Advantages of foreign direct investment
The home country by introducing Foreign Direct Investment boosts up its exports and improves its forex reserves. Since the exported products are much cheaper, exports continue to dominate the imports and give rise to rate of interest also.
Expansion of market
With the introduction of new markets, the firms could now expand their operations and reach more customers. This helps them make more profits and grow in size and expand. Foreign Direct Investment opens gates of new opportunities if you are a foreign traveler. Advantages of foreign direct investment
Optimum utilization of resources
As already discussed, Foreign Direct Investment brings better managerial skills and technology to the host nation. Thus by providing opportunity for growth to the foreign country and utilizing the resources of the host country, efficiency and effectiveness is achieved. And thus Foreign Direct Investment leads to optimum utilization of resources.
As a foreign firm you have a wider choice to choose between the various options available in order to minimize cost and improve quality. The host country get more options in the market and hence help them improve their standard of living. Thus both you (as a Foreign Direct Investor) and the domestic country get wider choice.
Foreign Direct Investment leads to reduction in costs to the firms. Foreign Direct Investment is made in the country that minimizes the cost and provides resources at cheaper rates. Thus the cost content is lowered leading to higher profits. You have a great chance to earn more profits here.
Foreign Direct Investment results in relaxation of various trade restrictions. Thus, you could do easy trade and that too across the boundaries of your country. More opportunities are waiting to be availed and new limits are yet to be set.
Human capital formation
When foreign companies enter the domestic ones, they impart training and education to the citizens in order to utilize their talents. So, more human capital formation takes place in the economy.
Improved international relations
With Foreign Direct Investment, the international relations among the countries also improve imparting greater peace and understanding across the boundaries. So, get patriotic and help your country improve relations with India.
In order to attract more foreign investors, tax incentives and various other benefits are waiting your way. Tax relieves and various deductions are available to you if you seek to invest as a Foreign Direct Investor in India.
Catalysts of economic growth
A single investment further results in a multiple increase because of its multiplier nature. It helps the economy grow in multiple ways. Due to its multiplier nature, Foreign Direct Investment is considered to be a Catalyst for economic growth.
In a nutshell, Foreign Direct Investment is a boon and an early bird could grab the worm in this case.