Home | ARTS | Managerial Economics | Foreign Direct Investment - Industrial Finance And Foreign Direct Investments

Managerial Economics - Industrial Finance And Foreign Direct Investments

Foreign Direct Investment - Industrial Finance And Foreign Direct Investments

   Posted On :  30.05.2018 12:51 am

Foreign capital plays a vital role in the industrialization and economic development of a country, as it forms one of the essential determinants of economic growth of developing countries.

Foreign Direct Investment
 
 
Foreign capital plays a vital role in the industrialization and economic development of a country, as it forms one of the essential determinants of economic growth of developing countries. Over the past two decades many countries around the world have experienced substantial growth in their economies with even faster growth in international transactions, especially in the form of Foreign Direct Investment (FDI). The share of FDI in the world GDP has grown fivefold.
 
FDI refers to the net inflows of investments to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy other than that of the investor.

FDI = Equity capital + reinvestment of earnings + short term capital + long term capital.
 
FDI is classified as inward FDI and outward FDI. It can be a loan, collaboration or borrowing. The major investors in FDI are individual, group, private and public entity.
 

Need For FDI In India

 
As India is a developing country, capital has been one of the scarce resources that are usually required for economic development. Capital is limited and there are many issues such as Health, poverty, employment, education, research and development, technology obsolesce, global competition. The flow of FDI in India from across the world will help in acquiring the funds at cheaper cost, better technology, employment generation, and upgraded technology transfer, scope for more trade, linkages and spillovers to domestic firms. The following arguments are advanced in favor of foreign capital
 
Sustaining a high level of investment: As all the under-developed and the developing countries want to industrialize and develop themselves, therefore it becomes necessary to raise the level to investment substantially. Due to poverty and low GDP the saving are low. Therefore there is a need to fill the gap between income and savings through foreign direct investments.
 
Technological gap: In Indian scenario we need technical assistance from foreign source for provision if expert services, training of Indian personnel and educational, research and training institutions in the industry. It only comes through private foreign investment or foreign collaborations.
 
Exploitation of natural resources: in India we have abundant natural resources such as coal, iron and steel but to extract the resources we require foreign collaboration.
 
Understanding the initial risk: In developing countries as capital is a scare resource, the risk of investments in new ventures or projects for industrialization is high. Therefore foreign capital helps in these investments which require high risk.

Development of basic infrastructure: In the recent years foreign financial institutions and government of advanced countries have made substantial capital available to the under developed countries. FDI will help in developing the infrastructure by establishing firm’s different parts of the country.
 
Improvement in the balance of payments position: The inflow FDI will help in improving the balance of payment. Firms which feel that the goods produced in India will have a low cost, will produce the goods and export the same to other country. This helps in increasing the exports.
 
Foreign firm’s helps in increasing the competition: Foreign firms have always come up with better technology, process, and innovations comparing with the domestic firms. They develop a completion in which the domestic firms will perform better it survive in the market.
 

 

Tags : Managerial Economics - Industrial Finance And Foreign Direct Investments
Last 30 days 152 views

OTHER SUGEST TOPIC