Answer Writing

English Hindi

Question:  What is Foreign Direct Investment (FDI)? Elaborate on the current rise in FDI inflows. Suggest measures that can enable higher FDI inflows.


Answer:  Foreign Direct Investment (FDI) is an investment made by an individual or a firm from one country into business ventures located in another one with the intention of establishing a lasting interest. India’s FDI inflows have achieved record number lately.

Reasons for rise in FDI inflows

  • Higher returns
    Economies of developing countries provide better returns on investment. With China emerging as a suspicious entity, investments have been directed towards Indian companies.
  • Recession in Europe
    European economies have long passed their growth peak. Investors from these countries look for higher earnings by investing in high-growth countries such as India.

Measures to attract higher FDI

  • Reducing red tape
    FDI approvals have to be given at the earliest. Impediments created due to bureaucratic red tape have to be negated and faster facilitation has to be provided.
  • Single window clearance
    Approvals have to be cleared through single window without having to run pillar to post in complex system of India. This will encourage future investments.
  • Tax provisions
    To promote FDI, economic measures such as tax rebates have to be provided. Schemes such as Production Linked Incentives (PLI) will attract more investments.

Benefits of FDI growth

  • Creation of capital
    FDI will create more capital for budding industries and sectors. It will remove stress from Indian banking entities by making available foreign funds.
  • Employment generation
    FDI will create new jobs in various sectors ranging from professionals to unskilled. Employment will further increase the GDP and other growth indicators of the country.
  • Technology transfer
    FDI will ensure domestic firms get better access to new cutting edge technology. This will help in improving product structure as well as reduce costs.

Thus, FDI is a vital part of economic development that will allow overall development to take place. The increasing dependency on government capital can be reduced through FDI.

Updated on 03 Jun 2021 |   Added on .03 Jun 2021  |  by admin