A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company.
In other words, A Foreign Direct Investment is a controlling ownership in a business enterprise in 1 country by an entity based in another country.
Broadly, the foreign direct investment includes “mergers & acquisitions, building new facilities, reinvesting profits earned from overseas operations & intracompany loans”.
Foreign direct investment is distinguished from portfolio foreign investment, a passive investment in the securities of another country such as public stocks & bonds, by the element of control. Foreign direct investment firms are able to obtain a greater level of control than with portfolio investment.
Importance & Barriers to FDI
An increase in FDI may be associated with improved economic growth due to the influx of capital & increased tax revenues for the host country. Host countries always try to channel FDI investment into new infrastructure & other projects to boost development. Greater competition from new companies can lead to productivity gains & greater efficiency in the host country.
More & better employment opportunities:
Several studies have pointed out the benefits of allowing global retail chains in the multi-brand retail sector. The overall impact of modern retail on the economy is immense. A report by the Boston Consulting Group & the Confederation of Indian industry showed that nearly three to four million direct jobs will be created while another four to six million indirect jobs would be available in the logistics sector, contract labour in the distribution & repackaging centres, housekeeping & security staff in the stores.
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