How is FDI Beneficial in Economic Growth of the Country?
Foreign Direct Investment (FDI) is majorly when an individual or a company takes controlling ownership of businesses in another country. With FDI, foreign companies are involved with the day-to-day activities of the recipient company. Through this, we can say that FDI brings money to the country and with it comes knowledge, skills, advanced technology, and many more. Therefore, the FDI plays a significant role in the development of nations.
FDI in India
The history of FDI can be traced back way past in history. As India is a developing country, the economy has constantly been increasing, and FDI has undoubtedly acted as a positive catalyst in the whole process. It fills the gap between investment and savings by working as a bridge. One of the most positive thing which came with FDI was a boost in employment. FDI creates a great range of jobs which is why developing countries tend to attract more FDI. Increased FDI benefits both the manufacturing and service sectors. This, in turn, produces jobs and aids in reducing unemployment among the country’s educated youth and skilled and unskilled labor. In addition, increased employment leads to higher earnings, giving the populace more purchasing power, which benefits the entire country’s economy.
Apart from increasing employment, there are other benefits too of FDI.
- Backward Areas Development
FDI enables a country’s back areas to be transformed into industrial hubs. As a result, the area’s social economy receives a boost. This technique is exemplified at the Hyundai plant in Sriperumbudur, Tamil Nadu, India.
- Introduction of new technologies
FDI brings recent technologies, innovations, tools, and practices worldwide to the investing country. The introduction of newer, improved technology and processes cause their diffusion into the local economy, resulting in increased industry efficiency and effectiveness.
- Increment in capital flow
FDI also encourages increased capital influx, both in the form of money and materials. Thus, in many aspects, FDI India has improved people’s lives.
- Formation of a competitive market
FDI also helps in forming a competitive market as it breaks the monopolies of the domestic market. Moreover, it pushes the companies to perform better and increase their efficiency, which will benefit the consumers.
- Offers detailed information
Investors do more than invest money; they also become involved with the firm, which may be beneficial because they bring their professional expertise to the table and their insights and knowledge, which allow the company to advance using their tactics. Considering all of the positive aspects of FDI in India, it is undeniably beneficial to the Indian economy.
FDI in 2021
Despite the pandemic, there is still a lot of interest in investing in India. According to the Ministry of Commerce’s latest Foreign Direct Investment (FDI) data, India attracted a record $81.72 billion in FDI in the fiscal year 2020-21, up from $74.39 billion in the fiscal year 2019-20. However, FDI equity inflows increased by 19 percent from $59.64 billion to $49.98 billion during the same period. According to the CII and EY research, India is likely to receive FDI worth US$ 120-160 billion per year by 2025. Over the last ten years, the country’s GDP has increased by 6.8%, with FDI rising by 1.8 percent.