{"id":1983,"date":"2020-01-09T13:51:32","date_gmt":"2020-01-09T13:51:32","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=1983"},"modified":"2021-04-14T11:13:27","modified_gmt":"2021-04-14T05:43:27","slug":"growth-and-quality-of-fdi","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/","title":{"rendered":"Growth and Quality of FDI: Are all FDI Equal?"},"content":{"rendered":"\n<p class=\"has-drop-cap\">India is\nclassified as a newly industrialized country, and one of the G-20 major economies,\nwith an average growth rate of approximately 6% over the last two decades. It\nis an essential vehicle of technology transfer from developed countries to\ndeveloping countries. Its positive interaction with human capital enhances the\ncontribution of FDI to economic growth. Higher the level of human capital in\nthe host country, higher the effect of FDI on the country\u2019s economic growth.<\/p>\n\n\n\n<p>Hence, to\novercome the saving-investment gap, many countries have acquired the method of\nForeign Direct Investment, which will limit the level of domestic investment\nand encourage foreign investment. It helps in filling such a gap by bringing\nforeign investment into the country as well as bringing difference in\nmanagement, technology and entrepreneurship skills. It acts as a valuable\nsource of technology and foster linkages with local firms and companies to jump\nstart the economy.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/#What_is_Foreign_Direct_Investment\" >What is Foreign Direct Investment?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/#How_is_the_Growth_of_a_Country_and_Quality_of_FDI_interrelated\" >How is the Growth of a Country and Quality of FDI\ninterrelated?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/#What_are_the_advantages_of_FDI_in_India\" >What are the advantages of FDI in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/#What_are_the_Routes_through_which_India_gets_FDI\" >What are the Routes through which India gets FDI?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/#What_are_the_Sectors_which_come_under_the_%E2%80%9C100_per_cent_Automatic_Route%E2%80%9D_Category\" >What are the Sectors which come under the \u201c100 per cent\nAutomatic Route\u201d Category?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/#Why_is_India_an_Attractive_Destination_for_FDI\" >Why is\nIndia an Attractive Destination for FDI?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/#What_are_the_Sectors_under_which_FDI_is_prohibited\" >What are the Sectors under which FDI is prohibited?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/growth-and-quality-of-fdi\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Foreign_Direct_Investment\"><\/span>What is Foreign Direct Investment?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Foreign\nDirect Investment is an investment made by a company or firm in one country\ninto business interests located in another foreign nation. Generally, FDI takes\nplace when an investor settles its business operations or acquire international\nbusiness assets in another foreign company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_is_the_Growth_of_a_Country_and_Quality_of_FDI_interrelated\"><\/span>How is the Growth of a Country and Quality of FDI\ninterrelated?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The rate of\nForeign Direct Investment is different for different sectors in India; however,\nthere lies a relationship between FDI and growth. The term \u201cquality of FDI\u201d\nmeans the \u2018effect of a unit of FDI\u2019 on economic growth. But it becomes\ndifficult to distinguish the quality of Foreign Direct Investment in different\nsectors with the growth in a particular country.<\/p>\n\n\n\n<p>To summarise\nour findings, the growth effects of&nbsp;<strong>FDI<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Foreign_direct_investment\">[1]<\/a><\/sup>increases when we\naccount for characteristics which might affect the quality of Foreign Direct\nInvestment.<\/p>\n\n\n\n<p><strong><em>\u201cQuality FDI\u201d can be differentiated in many ways which are listed below:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Effects of FDI differ by Sector and Industry;<\/li><li>FDI based on objective qualitative industry characteristics including the average skill intensity;<\/li><li>\u00a0FDI based on the subjective preferences expressed by the receiving countries.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_advantages_of_FDI_in_India\"><\/span>What are the advantages of FDI in India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>FDI has various key advantages ranging from economic growth of the\nnation to provide youth employment.<\/em><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Promotion of Investment in key areas<\/h3>\n\n\n\n<p>Allowing FDI\nin a country promotes investment in key areas such as infrastructure\ndevelopment.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Increase in Capital flow<\/h3>\n\n\n\n<p>FDI helps in\npromoting more capital inflow into the country, which will speed the economic\ngrowth of the country.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Increase in exports<\/h3>\n\n\n\n<p>The exports\nof many under underdeveloped and developing countries have increased with the\nhelp of FDI with the creation of economic zones and the promotion of 100%\nexport oriented units.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Employment Opportunities<\/h3>\n\n\n\n<p>With the\nadvent of Foreign Direct Investment in developing countries, there is a\nsignificant increase in employment opportunities in the nation.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Promotion of Financial Services<\/h3>\n\n\n\n<p>With Foreign\nDirect investment in a country, the capital market of a country has\nstrengthened through activities such as merchant banking and portfolio\ninvestment.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Exchange Rate Stability<\/h3>\n\n\n\n<p>The Reserve\nBank of India is continuously striving to maintain the exchange rate in our\ncountry through its exchange control measures. With the inflow of more FDI in a\ncountry, RBI now has a very complacent foreign exchange reserve position.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Routes_through_which_India_gets_FDI\"><\/span>What are the Routes through which India gets FDI?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>There are mainly two routes through which India get FDI \u2013<\/em><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Automatic Route<\/h3>\n\n\n\n<p>In the\nautomatic route, Indian Companies and Non-Resident Indian do not require RBI\napproval for FDI.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Government Route<\/h3>\n\n\n\n<p>In case, any\nsector wants to get FDI; then it requires prior government approval. The\ncompany has to apply through the Foreign Investment Facilitation Portal. The\napplication is then accelerated to the respective ministry. The particular\nministry will approve or reject the application after consultation with the\nDepartment for Promotion of Industry and Internal Trade, Ministry of commerce.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Sectors_which_come_under_the_%E2%80%9C100_per_cent_Automatic_Route%E2%80%9D_Category\"><\/span>What are the Sectors which come under the \u201c100 per cent\nAutomatic Route\u201d Category?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Agriculture &amp; Animal Husbandry,<\/li><li>Air-Transport Services (non-scheduled and other services under the civil aviation sector)<\/li><li>Airports (Brownfield + Greenfield)<\/li><li>\u00a0ARCs (Asset Reconstruction Companies)<\/li><li>Automobiles such as cars and motorbikes.<\/li><li>Biotechnology (Greenfield)<\/li><li>Broadcast Content Services and Broadcasting Carriage Services<\/li><li>\u00a0Capital Goods<\/li><li>\u00a0Cash &amp; Carry Wholesale Trading Chemicals<\/li><li>Coal &amp; Lignite<\/li><li>\u00a0Construction Development<\/li><li>\u00a0Hospital Construction<\/li><li>Credit Information Companies<\/li><li>Duty-Free Shops<\/li><li>E-commerce Activities<\/li><li>Electronic System<\/li><li>\u00a0Food Processing Units<\/li><li>Jewellery and gems<\/li><li>Healthcare Sector<\/li><li>Industrial Parks such as IT and Business Parks<\/li><li>IT &amp; BPM(Business Processing Management)<\/li><li>\u00a0Leather Industry<\/li><li>Manufacturing Sector<\/li><li>\u00a0Mining &amp; Exploration of metals &amp; non-metal ores<\/li><li>\u00a0Other Financial Services<\/li><li>Services under Civil Aviation Service (For example \u2013 Maintenance &amp; Repair Organizations)<\/li><li>Petroleum &amp; Natural gas Sector<\/li><li>\u00a0Pharmaceutical Sector<\/li><li>Plantation sector<\/li><li>Ports &amp; Shipping<\/li><li>Railway Infrastructure<\/li><li>\u00a0Renewable Energy<\/li><li>Roads &amp; Highways<\/li><li>Single Brand Retail Trading<\/li><li>Textiles &amp; Garments<\/li><li>Thermal Power<\/li><li>Hospitality and Tourism Sector<\/li><li>White Label ATM Operations.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_is_India_an_Attractive_Destination_for_FDI\"><\/span>Why is\nIndia an Attractive Destination for FDI?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>FDI has hugely developed in the whole world. It has made development of infrastructure possible in the country in order to provide a better living standard. Because of the role of multinational company, it has coincided with the rise in FDI, which signifies an increasing share of the foreign ownership in those economies. <\/p>\n\n\n\n<p>With time, India has paved itself as one of the leading economies in the\nworld. Besides this, India\nis considered as the world\u2019s second fastest emerging economy and is consequently a very profitable\nand attractive market for FDI. The FDI stock in India has improved when the economic reforms happened radically from\nless than $2 billion in 1991\nto more than $45\nbillion in 2005. It is believed that there are two major factors that\nhave augmented the\ninflow of FDI into India. The first one is the structural reason like\nthe infrastructure quality,\ngeographical and market\nsize and cultural consensus\nwith the major\nsources of capital. The second one is the policy factors like investment incentives, rate of tax and performance requirements.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Sectors_under_which_FDI_is_prohibited\"><\/span>What are the Sectors under which FDI is prohibited?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>There are some sectors and industries under which FDI is strictly\nprohibited:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Atomic Energy Generation<\/li><li>Any Gambling or Betting businesses<\/li><li>Lotteries (online, private, government, etc.)<\/li><li>Investment in Chit Funds<\/li><li>Nidhi Company<\/li><li>Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc.)<\/li><li>Housing and Real Estate (except townships, commercial projects, etc.)<\/li><li>Trading in TDR\u2019s<\/li><li>Cigars, Cigarettes, or any related tobacco industries<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The quality\nof FDI is associated with positive and economically significant growth effects\nwhich cannot be overlooked. The relation between the growth and the quality of\nFDI is stronger for industries with higher skill requirements and industries\nmore reliant on external capital. Understanding the effect of FDI on economic\ngrowth is quite important as one must be able to figure out the sector he or\nshe wants to invest in.<\/p>\n\n\n\n<p><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/alternative-investment-fund-registration\" target=\"_blank\" rel=\"noopener noreferrer\">Alternative Investment Fund Registration<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>India is classified as a newly industrialized country, and one of the G-20 major economies, with an average growth rate of approximately 6% over the last two decades. It is an essential vehicle of technology transfer from developed countries to developing countries. Its positive interaction with human capital enhances the contribution of FDI to economic [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":1984,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[259],"tags":[260],"acf":{"service_id":"220"},"authorName":"Shalini Singh","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2019\/09\/MEE.jpeg","authorDescription":"Shalini is a B.tech graduate but her keen interest in writing impelled her to continue as a content writer. Further, She has a rich experience in Companies Act and Ammendment related topics.","postViews":5752,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/1983"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=1983"}],"version-history":[{"count":12,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/1983\/revisions"}],"predecessor-version":[{"id":28928,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/1983\/revisions\/28928"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/1984"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=1983"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=1983"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=1983"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}