Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) - Understanding

For a fast developing country like India, various parameters have to be taken into consideration while deciding the framework of any kind of investment here. The overall economic framework of investment in India is vast and extensive, given the fact that a large segment of the population forms the core market segment here and the net valuation of this segment is humungous. It is a fact that modern economics thrives on participatory collaboration and in this perspective, India today comes in the category of countries that are in the process of successfully drawing upon foreign technology and foreign investment through direct capital. Foreign Direct Investment (FDI) is a phenomenon of immense market value-driven dynamics in India today.

Gaps Covered Through FDI

As far as a majority of experts are concerned, FDI, in its most basic terms is a mode of investment whereby three major gaps can be covered. These are:

  1. Savings Gap
  2. Trade Gap
  3. Technological Gap

Given the role played by technology in driving the modern-day economic strength of any country, it is a fact that the level of technological diffusion that was supposed to happen in India could never actually take off. A large number of factors like the system of education, the administrative gaps, the whole industrial and trade policy domain, lack of innovation-based investment etc. are responsible for this. However, although this may form the basic structure of why FDI is a requirement here in India, yet there are many other aspects as well. The aspect of financial inclusion of our huge population with its varying needs into the global domain is the primary aspect here. The inflow of capital from foreign countries may take place either in the form of foreign aid or private investment. This forms a source of capital that comes with a hugely limiting factor of repayment obligations.

Direct Private Investment Channel Forms

However, direct private investment channel is entirely different and may have any of the following forms:

  1. Direct business investment through investment by branches of foreign companies
  2. Investment by subsidiaries of foreign companies, and
  3. Investment by other foreign-controlled companies.

Although the direct channel for FDI investment may include some clause of participation or even collaboration (as in Retail FDI), yet this may not always be the case. Therefore, FDI may take place even without collaboration in some sectors. This is because, on a broader note, FDI refers to capital investment as a stake of a foreign partner in the capital of the recipient company in our country. However, unlike this understanding of FDI, technical collaboration refers to such facilities provided by the foreign partner as technical servicing, licensing, franchise, trademarks or patents etc.

Today, FDI is being viewed by the government as a vehicle for the transfer of technology not indigenously available or to promote export-oriented production and manufacturing. Earlier, FDI without the import of technology was not encouraged. However, with the support towards increasing stakes of foreign companies in the retail sector, such speculation has been put to rest.

Tradebulls, as a collaborator in the trading domain and as a responsible platform for financial inclusion is completely in sync with the developmental agenda being carried forward through FDI.