FDI or foreign Direct Investement is used as a strategic tool to speed up the development process.Developing countries like India suffer from poor capital formation and low level of income generation.FDI can be helpful to overcome such situations.
In India FDI is important because of many reasons
- To overcome domestic savings constraints
- To carry out development projects
- With investment comes better technology
- Boosts up production
- Ensures India's assimilation in the global production chain
- Creates better employment opportunities
India is a favouite destination of the foreign investors due to the following reasons
- Huge domestic market
- Conducive government policies
- Access to the flourishing South-East Asian market
- Easy availability of cheap labour
- No hindrance in using foreign brand names
- Corporate tax holidays, eg- 100% duty exemption for the SEZs
Except coal and lignite,atomic energy,railway transport, arms and ammunitions,mining of gold,chromium etc. India allows FDI in varying rate in all other areas.Mauritius leads in FDI in India, followed by US.In India FDI is allowed through four routes- joint ventures,capital market,preferential allottments,financial collaboration.States like Maharashtra, Karnataka, Gujarat,Delhi lead in attracting FDI.Financial sector,IT sector and Real estate market are in the top zones to attract maximum FDI..The FDI in the current fiscal is expected to cross $ 35 bn mark.
FDI ensures mobilization of financial resources and maximum utilization of a country's potentials.It changes government policy from resource generation to resource utilization.Though it is often blamed for ousting domestic resources and lowering regulatory standards in investment patterns, it can not be denied that the resurgence of Indian economy in the present years has much to do with liberal policy of the government towards foreign investment since the liberalization of economy in 1991.