Foreign Direct Investment (FDI) and their types Free Essay Example

The main purpose or objective doing this report is 1. To study what is actually Foreign Direct Investment (FDI) and their types. To study the FDI trends and how it influences to India 3. To study the advantages and disadvantages also importance FDI to India and their investors itself. 2. Introduction Foreign Direct Investment (FDI) is capital provided by a foreign direct investor, either directly or through other related enterprises, where the foreign investor is directly involved in the management of the enterprise.

According to International Monetary Fund (IMF, International Monetary Fund, 2013), Foreign Direct Investment or simply as FDI refers to an investment made to acquire lasting or long term interest in enterprises operating outside of the economy of the investors.

It can simply define as the allocation by a multinational firm of capital, managerial and technical asset from its home country to a host country. In FDI it had three components whereas: equity capital, reinvested earning and intra-company loans.

Inflows of FDI stated as a net basis meanwhile outflow of FDI is the reporting economy comprise capital provided by a firm from host country.

There were several types of foreign direct investment which is Multinational Corporation, transnational corporation, strategic alliance, and also joint venture. For Multinational Corporation it was operate or handling from their home country even it actually operating in several country. The transnational corporation is the country that maintains the significant operation in more than one country but regionalize management to the local country.

Meanwhile the strategic alliances was an approach to going global that involve partnership between an organization and a foreign company in which both share knowledge and resources in developing new products or building production facilities.

It was common place in the biotechnology, information technology and the software industries. The joint venture FDI is an approach to going global that is specific types of strategic alliance.

There was the partner had agreed to form an independent organization for some business purpose. For the joint venture types is divided into two types hich is contractual joint venture and equity joint venture. The contractual joint venture was between firms usually for a specific project, such as manufacturing a component or other product for a fixed period time. Meanwhile the equity joint venture was when a firm holds an equity stake in the setting up the joint subsidiary such as produce goods or services. 3. History of FDI in India It is false if people advocated that India is a fresh country joining foreign direct investment (FDI). It is totally wrong. Actually India already joined or more accurate received the FDI since 1947, more early than other countries (Kapur, 2005).

It was concentrated in primary sectors and services whereas foreign country like British conquers India’s mining, plantations, trade and manufacturing base. In early post-Independent years, FDI contributed and shows significant role as India turned abroad for both technology and capital. Late 1950s, foreign capital was invited in various sectors by Indian government (Kapur, 2005). The sectors was pharmaceutical drugs, aluminum, heavy electrical and chemicals. The results, during the 1960s, the capital flow concentrated on manufacturing especially technology-intensive industries.

End of 1960 approximately 60 percent capital from FDI flows to manufacturing industries. Reverberation from food crisis and depreciation of the Rupee in 1960, the hardening of policy was there. Early 1970, foreign oil majors were publicly owned. The government of India never rules out the new foreign investment but now it wanted to be in restrictive term. In 1973, the Foreign Exchange Regulation Act (FERA) had introduced an article that obligatory firms to dilute their foreign equity holdings to 40 percent if they wanted to treat as like Indian companies.

By the mid-1980, growing concern about stagnation and technological uselessness in India industry led to push for economic reform and deregulation (Kapur, 2005). On the 1990s, it started with major crisis. In the middle of Gulf War, and the consequent removal of Indian emigrant from the Middle East, foreign exchange payments fell. The panicked withdrawal of funds happened in India by Non Resident that occurred not balance of payments. As agreed with the IMF, the Rupee was devalued, and the fresh attempts were made. That will to liberalize the trade rule and the guiding framework.

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