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Any commercial organization located in one country when acquires a controlling stake or ownership of a business interest in another country is termed as a foreign direct investment (FDI). It is a good way to generate finances for startups or large businesses while providing established multinational corporations an entry into a new market. Importance
Investments of this nature are critical for a country like India as the much-required capital inflow is provided by foreign entities for the development of various business sectors. In addition to financial resources, modern manufacturing techniques and management practices are also brought in for better productivity. In a nation like ours, where the revenue generated by the government is exhausted mainly in infrastructure projects and towards beneficial programs running for the benefit of weaker sections of the society, it has been a steady and dependable source of much needed monetary infusion. It has imparted the necessary momentum to the economy by energizing business activities and giving rise to a vibrant and dynamic business environment. Moreover, its significance cannot be discounted with regard to the creation of jobs and better opportunities for exports. It would not be incorrect to state that FDI has played a key role in providing financial stability to the country. As is the case with any policy, there are some advantages as well as drawbacks and a few of them are listed below : ProsInvestment in Key Areas: The core sectors saw the significant infusion of capital which helped in the creation of world-class infrastructure for production and other related facilities. This acted as a catalyst for all-round growth as the investment multiplied in a number of directions. Transfer of Technology: As overseas entities moved in, they brought along with them new and improved methods and tools of the trade. State of the art techniques for production and modern organizational practices designed for optimum efficiency were introduced to the local workers, enriching their knowledge and helping them in competing with the best in the world. Better Employment Opportunities: The enormous population of our country necessitates the regular generation of jobs as unemployment has been a major problem since the last many years. Foreign Direct investment to some extent has addressed the issue with jobs being created in various sectors and across all pay grades as companies keep expanding their operations. Enriched Human Capital: As the local employee base was exposed to high-grade technical processes and practices, it helped in their personal growth. Besides, to cater to the new corporations’ human resource requirements, the academic institutions started offering updated courses. All these factors help in the rise of a highly skilled, capable and professional workforce. Cons Detrimental Effect on Small Business: Foreign investment in India brought multinational giants with infinitely deep pockets and there was no way that cottage industries or small businesses could stand up to them. It is a major cause of the migration of rural populace towards urban centres in search of employment. Increasing Trade Deficit: Regimes like Trade Related Intellectual Property Rights (TRIPs) and Trade-Related Investment Measures (TRIMs), which the country had to join as it is a member of WTO, has resulted in the restriction on the production of certain items which consequently translates into a disturbing imbalance between the exports and imports. Stagnant Local Research and Development: Most of these foreign organizations fund manufacturing activities in the country but do not finance any domestic research leading to very limited homegrown innovation. Negative Effect on Environment: Rapid industrialization and ruthless exploitation of the natural resources in addition to the lax implementation of environmental regulations has led to damaging of the vital components of our ecosystem. Conclusion Foreign direct investment is and will remain a potent tool for invigorating the nation’s economy but depending on it as the sole source of raising funds can be detrimental to the economic health in the long run and therefore all viable financing routes must be exploited for the purpose.
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AuthorAmy Jones is a professional legal expert working with Ahlawat & Associates. With a long background of taking up several types of cases, she is able to provide the right legal consultation to their clients in a professional manner and help them to solve their complicated legal problems. she keeps writing about different legal matters. Please follow her on Facebook & Twitter to get her latest updates. Archives
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