Foreign Direct Investment (FDI) refers to investing an amount by an organisation of one country into another with the objective of expanding to a new market. To make it clearer, if a US company like Tesla opens another headquarter in Mumbai, India, then it is tantamount to bringing FDI into India. It is also to be noted that FDI does not mean a mere global transfer of capital as it includes the movement of components that are supportive of capital such as skills, processes, management, technology etc. Now, let us understand how FDI benefits a developed country like India.
Creates Immense Job Opportunities
India is one of the many countries that has been grappling with the problem of unemployment for a while. Things have improved marginally in the last quarter and in October 2022 country’s jobless rate stood at 6.5 percent. This is indicative of the fact that India has been able to pull things back a bit on the employment front but there is still considerable scope for improvement in the arena. FDI is the perfect antidote for unemployment. It has the propensity to energise manufacturing as well as services sectors and create immense job opportunities in the country.
Boost Human Capital
This happens to be one of the less-celebrated advantages of the FDI. Human capital implies the skill and awareness of the workforce. Skills derived and strengthened via training and experience increase the potency of education and human capital in the country. Once the potential is harnessed, human capital becomes mobile. It could lead to developing human resources in other companies, creating a knock-on effect.
Upliftment Of Backward Areas
Another benefit of FDI coming into a developed country like India is the betterment of least developed places. FDI facilitates the upliftment of backward areas and transforms these into industrial hubs. Once they become industrial centres, the socio-economic outlook of these places changes for the better as well. The Hyundai unit at Sriperumbudur, Tamil Nadu, is a classic example of the same.
Maximize Exports
Now, let us understand how it helps in increasing exports. All the goods produced via FDI do not go towards domestic consumption. Several of these products are meant for international markets as well. The establishment of 100% Export Oriented Units and Economic Zones have also helped FDI investors increase their exports from other countries.
Market Turns Competitive
Protectionism is the worst kind of enemy of any market. In these times it is imperative to be competitive to survive. By allowing foreign organisations into a developing economy, the business environment becomes conducive to competition, weakening domestic monopolies. This goads domestic companies to enhance their services and offer superior products. The ultimate winners in the whole saga happen to be the domestic consumers and the economy.
