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Fdi in India Advantages and Disadvantages

Topics: Foreign direct investment, Investment, Macroeconomics, Economics / Pages: 3 (749 words) / Published: Jan 30th, 2012
FDI in India Advantages and Disadvantages
Overview
First of all, FDI means Foreign Direct Investment which is mainly dealings with monetary matters and using this way they acquires standalone position in the Indian economy. Their policy is very simple to remove rivals. In beginning days they sell products at low price so other competitor shut down in few months. And then companies like Wall-Mart will increase prices than actual product price. They are focusing on national and international economic concerns. There are four main working pillars of FDI. They are financial collaborations, technical collaborations and joint ventures, capital markets via Euro issues, and private placements or preferential allotments. There are two types of FDI, one is inward FDI and second is outward FDI. Ongoing news suggests that largest retailer Wal-Mart has demanded for 51% of international dealings in FDI in Indian markets which had called nationwide strike. From positive and negative aspects FDI has its own advantages and disadvantages.

Advantages y y y y y y y y y

Increase economic growth by dealing with different international products 1 million (1 Crore) employment will create in three years - UPA Government Billion dollars will be invested in Indian market Spread import and export business in different countries Agriculture related people will get good price of their goods. Employment opportunities in foreign market are increased In the long run the aggregate supply shift outward It also makes the incentive for the domestic producers Government income is also increased

The advantages of the Foreign Direct Investments are that the majority victorious domestic companies, particularly those with only one of its kind compensation, spend abroad. The second advantage to be considered to be is the direct investment that makes companies more victorious internally. Companies with Foreign investment generally tend to be most profitable as well as it is to have a more stable sales and earnings. Advantage of foreign direct investment is flow of funds in our country, and available the funds for corporates through Foreign direct investment , it developed country growth sign in global level , if we depend totally on Foreign direct investment, it impact shown our financial system negatively , Foreign

direct investor main aim to earn profit from our market, if any uncertainty in the market , if Foreign direct investor taken there entire investment from our market then our financial system was collapsed. That is the example of u.s sub-prime crisis impact on Indian financial system and stock market even our Indian financial system healthiest because of disadvantage of Foreign direct investment. FDI can take place via multinational enterprises. Among the more positive attributes are that MNEs can provide are knowledge, capital, technology, expertise, global affiliations, contributions to national productivity and exports, innovation, employment, and societal change.

The pros of foreign direct investment are the flow of cash into the country. It will obviously stimulate economic activity in the country. Employment numbers will go up. Existing domestic producers will have to pull up their socks due to the onset of high quality competition. The international community will sit up and take notice. The Government will be taken seriously in the international summits because the number of stakeholders in the country has increased.

Disadvantages y y y y y y y y y y

Will affect 50 million merchants in India Profit distribution, investment ratios are not fixed An economically backward class person suffers from price raise Retailer faces loss in business Market places are situated too far which increases traveling expenses Workers safety and policies are not mentioned clearly Inflation may be increased Again India become slaves because of FDI in retail sector Inflation is increased Local market is affected badly.

Among the negative attributes, are that the MNE is perceived as a threat to national sovereignty, have unfair advantages over local competition, exploit government incentives at the expense of taxpayers, limit knowledge transfer to developing nations, exploit critical national and natural resources, and move on when their exploitation is finished. The disadvantages of foreign direct investments are cost of travel and communications abroad. It also does not very much relate to local business tax laws, business atmosphere in particular and other government regulations. Another disadvantage could be the language and culture differences.

The cons of foreign direct investment are most visible in cases where the industry could have national secrets. The defense sector could be at risk if it allows FDI. Foreign policies may be enforced that do not go down well with domestic employees.

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