What are FDIs? The concept of FDIs is very simple. FDIs are investments made by individuals or firms from one country into businesses in another country. The intention of FDIs is to create a lasting business interest. FDIs occur when individuals or business enterprises retain at least the 10% ownership of a transnational company. In case the investors own lower than 10%, the International Monetary Fund (IMF) considers it to be a part of their stock portfolio. Many economists appreciate the concept of FDIs when they are transmitting from economically developed countries to economically backward countries across the globe.
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The average inflow of Foreign Direct Investments (FDIs) in India stood at $1,384 million from 1995 until the current year, 2019. FDs reached an all time high of $8,569 million in the month of August 2017, while they touched a record downfall of $1,336 million in the month of November 2017. According to a recent Government report, the inflow of FDI equity was up by 28% in the beginning quarter of the current financial year, 2019-2020. India is considered to be a favorite destination for FDIs for five important reasons:
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As per the UN Conference on Trade and Development (UNCTAD), in India, FDIs soared by 6% to $42 billion previous year. The recently released UNCTAD report says that FDIs are very strong in financial, manufacturing and communication services. James Zhan, who is the Director of Investment and Enterprise, said, “FDIs have witnessed a sustainable growth rate since the agencies for FDIs are dynamic in fostering investments.”
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FDI policies offer a mechanism of investments in business entities in one country by other business entities in another country. They fill the gap between the savings and investments of resources and intend to enhance the efficiency rate of both input and throughput. The latest FDI policies direct towards the norms of liberalization. These policies have brought in a few important changes, which include:
FDIs are of two types: 1) greenfield investments and 2) mergers and acquisitions. Greenfield investments are made exclusively in brand new facilities or the extension of prevailing facilities. They are normally made in developed economies, including India and China. When two companies merge together to form a single enterprise, investments are required to be made either by a single company or both. A company in one country can acquire another company in other country. It is called acquisition. When acquisition happens, there are some expenses to be incurred according to the business terms and conditions.
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Several developing nations have no adequate funds to develop the much-needed sectors. FDIs help in that regard. They also have a direct impact on the economies of both the investing country and the recipient country. As far as India is concerned, they have proven to be instrumental in creating wealth.
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