Advantages of Foreign Direct Investment in India

The various benefits of Foreign Direct Investments in India are given below.

FDI Advantages

(Image: Advantages of FDI)

Advantages of foreign direct investments in India:

1. Promotion of investment in key areas:

By allowing FDI, we can promote investment in key areas such as infrastructure development as a result of which there will be more production of capital goods. For example, investment in power generation can generate more electric power which will enable the growth of more industries.

2. New technologies:

FDI can bring in more new technologies which were not adopted in the country till now. Examples are the recent developments in the Communications System. The launching of satellites with the help of other countries has enabled the growth of communication system in the country. Nokia has come to India for promoting India’s communication system.

3. Increase in Capital inflow:

FDI promotes more capital inflow into the country especially in key and core sectors. We have a shortage of capital not only in the form of money but also in the form of material. FDIs will bridge this gap by which there will be speedy economic growth in the country.

4. Increase in Exports:

With the help of FDI, the exports of many underdeveloped countries have increased. The creation of Economic Zones and promotion of 100% export oriented units have helped FDIs in increasing their exports from other countries. Certain consumer products produced by them have world-wide markets. There is a change in the composition of exports and direction of exports with the presence of FDI.

5. Promotion of Employment opportunities:

The advent of FDI in developing countries has promoted the service sector. This has resulted in a change in the advertising and marketing technologies. This provides more scope for employment opportunities. Educated unemployment to some extent is reduced by the FDI as they could absorb some of Indian work force.

6. Promotion of financial services:

FDI strengthens financial services of a country by not only entering its banking industry but also by extending other activities such as merchant banking, portfolio investment, etc., which has resulted in the promotion of more new companies. It has also helped the capital market in the country.

7. Exchange rate stability:

Reserve Bank of India has been maintaining the exchange rate in the country through its exchange control measures. But the constant and continuous supply of foreign exchange is a must for continuing exchange rate stability. With more FDIs coming into the country, this is made possible and today RBI is having a comfortable foreign exchange reserve position of more than 1 billion dollars.

8. Development of backward areas:

Foreign direct investments are in a way responsible for the development of backward areas. There are so many industries started by them in far reaching and backward areas, as a result of which these areas have developed into industrial centres. Some of the backward regions have utilized the services of FDIs for starting industries in backward areas. Examples are Hyundai and Ford car units started at Sriperumbadur and Maraimalainagar in India.

9. Utilization of natural resources:

The natural resources in the country is put to better use by the FDls which otherwise would have remained un utilised. The examples are Saint Gobain glass company and manufacture of paper and newsprint.

10. Change in the lifestyle of people:

The presence of FDIs has no doubt changed the life-style pattern of people. The purchase of consumer goods such as TV, fridge, automobiles are made possible as these goods are made available through hire purchase system. The increasing number of automobiles in most of
the cities is a standing example for the change in the life-style.

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