Foreign Direct Investment (FDI)

Multinational firms turn multinational when they conduct business around the world and when they under take FDI. FDI is a complex process and is different from domestic investment decision. Various alternatives for international/ multinational business are Joint ventures, mergers and acquisitions, licensing and franchising. FDI is investment made by international corporation to increase its multinational business. When firms become multinational they undertake FDI route. It usually involves the creation of new production facility in other countries to earn better returns. The evaluation process for DFI is deeper, more costly, less accurate and involves more risk compared to domestic risk. Company and states are motivated for FDI to expand market by selling abroad, acquire foreign  resources such as labor, material, know how, production efficiency, cheaper land, market (population based). Indirectly the government gains political advantages i.e.  enter – country relation improves.

IMF defines FDI when the Investor holds more than 10% of its stake in the business. FDI has turned a good tool for economic growth and development by way of structural changes and international integration. FDI is one of the most important source of capital for developing countries.

Positive factors for FDI:-

1. Proper assistance & availability of economic information.
2. Corruption level to be tackled.
3. Stable political & business environment.
4. Market growth potential-Consumption.
5. Excellent Infrastructure (IT, Logistics, Transport, water, Power etc.)

FDI: – Limitations in India

FDI is not permitted in the following areas

1. Ammunition
2. Atomic power
3. Railways
4. Coal
5. Mining of ore – iron, Chrome, Gold, Etc.