1) Helps in Balancing International Payments:
FDI is the major source of foreign exchange inflow in the country. It offers a supreme benefit to country’ external borrowings as the government needs to repay the international debt with the interest over a particular ***** of time. The inflow of foreign currency in the economy allows the government to generate adequate resources which help to stabilize the BOP (Balance of Payment).
2) FDI boosts development in various fields:
For the development of an economy, it is important to have new technology, proper management and new skills. FDI allows bridging of the technology gap between foreign and domestic firms to boost the scale of production which is beneficial for the betterment of Indian economy. Thus, FDI is also considered an asset to the economy.
3) FDI & Employment:
FDI allows foreign enterprises to establish their business in India. The establishment of these enterprises in the country generates employment opportunities for the people of India. Thus, the government facilitates foreign companies to set up their business entities in the country to empower Indian youth with new and improved skills.
4) FDI encourages export from host country:
Foreign companies carry a broad international marketing network and marketing information which helps in promoting domestic products across the globe. Hence, FDI promotes the export-oriented activities that improve export performance of the country.
Apart from these advantages, FDI helps in creating a competitive environment in the country which leads to higher efficiency and superior products and services.
FDI Policy of Government of India
Government of India has taken various effective steps to simplify the Foreign Direct investment policy. The Foreign Direct Investment Policy (FDI Policy) of the Government of India prescribes the foreign investment cap in specified industrial sectors. But in the recent times many activities have been transferred to unrestricted sectors in which 100% Foreign Direct investment is permitted. Broadly, the industrial sectors are categorized as:
- Restricted
- Prohibited
- Unrestricted Sectors (Up to 100% foreign ownership)
All the sectors other than those mentioned below subject to terms and conditions in the FDI policy come under unrestricted sectors for example:
Mining (except Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities)
- Manufacturing related commercial activities
- Information Technology related activities
- E-commerce (permitted in marketplace model and not the inventory based model. Also, it applies only to Business to Business e-commerce and not business to consumer e-commerce)
