How FDI is Beneficial in Economic Growth of the Country?

As the name suggests, FDI stands for Foreign Direct Investment. Under FDI, foreign companies or individuals direct invest in the business, capital markets or production of the host country to take advantages of relatively lower wages, tax exemptions etc. In India, Foreign Direct Investment policy is regulated under the Foreign Exchange Management Act (FEMA) 2000 and administered by the Reserve Bank of India (RBI). In July 2020, Foreign Direct Investment in India increased by 3269 USD Million.

FDI plays a crucial role in the economic growth of the country. The capital inflow by foreign investors enables countries to strengthen their infrastructure, enhance productivity, and create employment opportunities in the country. After the 1991 economic liberalization, the Indian government's favourable policy regime and robust business environment ensured that foreign capital keeps flowing into the country.

According to the recent World Bank's ease of doing business 2020 report, India's rank is 63 among 190 nations. During 2014-2019, India's rank was 79th in matter of ease of doing business. Recently the Indian government has taken many initiatives to relax FDI norms across sectors such as defence, PSU oil refineries, telecom, power exchanges, and stock exchanges. Below mentioned points explain how FDI helps in the development of the developing country.

By allowing FDI in India, the government strengthen their infrastructures such as railways, road, highways, and electricity in the country that promote the development and encourage small and medium domestic enterprises to start their venture.

FDI brings new-age technologies which were not adopted in the country till now. For example, the recent boom in Artificial Intelligence, Blockchain Technology which helps other countries to uplift their technology.

The heavy investment done by foreign countries enables the Government to repay the international debt with the interest over a particular period. The inflow of foreign currency in the economy enables the government to produce sufficient resources which help to stabilize the BOP (Balance of Payment).

FDI allows foreign companies to establish their business in the country. That creates employment opportunities for the people of the country. Thus, the government facilitates foreign organizations to set up their venture in the country to empower youth with new and advanced skills.

International companies have a comprehensive international marketing network and marketing information, which helps in promoting domestic products across the globe. Hence, FDI promotes export-oriented activities that enhance the export performance of the country.

Countries economic development depends on new technological advancement, superior management, and cutting-edge skills. FDI helps to bridge the technological gap between foreign and domestic firms to enhance the scale of production which is beneficial for the betterment of the country's economy. Therefore assuredly, FDI is an economic boon for the nation.

Apart from the above benefits, FDI creates a competitive environment in the country which creates dexterous human resources, excellent products, and services.

• In May 2020, Government enhanced FDI in defence manufacturing under the automatic route from 49% to 74%.
• In March 2020, the Government allowed non-resident Indians (NRIs) to acquire up to 100 per cent stake in Air India.
• In August 2019, the Government permitted 100% FDI under the automatic route in coal mining for open sale.
• In Union Budget 2019-20, the Government of India proposed opening FDI in aviation, media (animation, AVGC) and insurance sectors in consultation with all stakeholders.

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