Home | ARTS | Managerial Economics | Determinants Of FDI - Industrial Finance And Foreign Direct Investments

Managerial Economics - Industrial Finance And Foreign Direct Investments

Determinants Of FDI - Industrial Finance And Foreign Direct Investments

   Posted On :  30.05.2018 12:57 am

The determinant varies from one country to another due their unique characteristics and opportunities for the potential investors.

Determinants Of FDI
 
The determinant varies from one country to another due their unique characteristics and opportunities for the potential investors. In specific the determinants of FDI in India are:
 
Stable Policies: India’s stable economic and socio policies have attracted investors across border.
 
Economic factors: Different economic factors encourage inward FDI. These include interest loans, tax breaks, grants, subsidies and the removal of restrictions and limitation.
 
Cheap and skilled labour: There is abundant labor available in India in terms of skilled and unskilled human resources. Foreign investors will to take advantage of the difference in the cost of labor as we have cheap and skilled labors.
 
Basic infrastructure: India though is a developing country, it has developed special economic zone where there have focused to build required infrastructure.
 
Unexplored markets: In India there is large scope for the investors because there is a large section of markets have not explored or unutilized.

Availability of natural resources: India has large volume of natural resources such as coal, iron ore, Natural gas etc. If natural resources are available they can be used in production process or for extraction of mines by the foreign investors.
 

Advantages Of FDI To The Host Country:

 
1.                  Availability of scarce factors of production
 
2.                  Improves the balance of payments
 
3.                  Building of economic and social infrastructure
 
4.                  Fostering the economic linkage
 
5.                  Strengthening of the government budget.

Disadvantages To Host Country:

 
1.                  Balance of payment depends on improvement of technology
 
2.                  Employment of expatriates
 
3.                  Unhealthy competition
 
4.                  Cultural and political issues

Advantages Of FDI To Home Country:

 
1.                  Improves the availability of raw material
 
2.                  Improves the Balance of payments of the country
 
3.                  It creates more Employment
 
4.                  Creates more Revenue
 
5.                  Builds Political relations
 
6.                  Gets better investment opportunity. 

Disadvantages To Home Country:

 
1.                  Too much Exploitation of factors of production
 
2.                  Conflict with the government of host country.
 
 
Now let us analyze the sources (countries) from where the FDI’s are coming into India. And a sector wise inflow of FDI’s into India.


 
From the above table it can be understood that around 42% of FDI to India comes from Mauritius followed by Singapore, USA, UK and Netherlands. Mauritius is the number one leading FDI investor in the world as well as for India. The reason is their favourable polices and legal environment of the country in the form of avoidance of double taxation when the FDI comes through Mauritius.
 
If we look at the sector wise classification - financial sector receives around 20% of the over all FDI of the country followed by computer software and telecommunication sectors. At present the overseas investment on real estate and construction has started growing. The auto industry and power sector receives around 5% each.


The above trend indicates that the FDI and FII of our country have grown seven fold with in these 10 years. FII has grown more than 20 times during this period. But in the first half, it started growing gradually but after 2005 the growth rate has been very high. It is evident that the economy is growing in various dimensions. The financial requirements are met through cross border mergers and acquisitions along with the direct investments. Thus it can be concluded that India is taking advantage of the FDI and FII sources for its development.

 

Tags : Managerial Economics - Industrial Finance And Foreign Direct Investments
Last 30 days 66 views

OTHER SUGEST TOPIC