Short Essay on Foreign Direct Investment (FDI)
Every country has its own set of FDI rules that decide the way he foreign country can conduct business. A foreign company interested in investing in an Indian company can take two routes-automatic and government route. In case of automatics route, no prior approval from Government of India or RBI is required to invest in sectors/ activities that are defined in consolidated FDI policy. Activities, other than those covered in FDI policy require government approval which involves decision by the Foreign Investment Promotion Board, Department of Economic Affairs, and Ministry of Finance.
The key benefit of FDI is the foreign capital and funds that it brings to the country where the investment is made. Besides, it enables the exchange of skill sets, information and expertise, job opportunities and also leads to an increase in the productivity levels. Many Asian progressive economies like China, South Korea have experienced booms in their economies due to higher proportion of foreign direct investment in their economies. From economic perspective, the FDI can be defined as the measure of foreign ownership of domestic productive assets including factories, organizations, land etc.
With internet having changed the rules of businesses across the world, FDI no longer demands huge capital and physical investment. Advent of small internet start-ups which require lesser investment and economies becoming knowledge oriented that lay emphasis on human capital instead of manual labor has altered the FDI operations largely. FDI has already captured the advanced economies of the developed nations like U.S. and is currently moving towards the developing nations where the FDI flows are growing better.
FDI is being looked upon as a way to internationalize and have global presence for many industries and companies. This also provides an excellent tool to the government to check the local production and also trade to be carried on freely without any barriers. With FDI coming, setting up of locally based sales offices ensures that companies are able to approach the customer directly.