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How FDI works?

Nowadays, after the onset of Modi Government in India everyone is talking about the radical changes in the FDI policy that are being made by the Modi government and how the government is at success. Everyone talks about the foreign trips our prime minister is making. But talking and knowing about two things are far different. Well, why not fully understand the basics of FDI and how does it works and how does it affects our nation.

To understand what FDI is, one has to understand what basic economics is as FDI is totally an economics related term. So in laymen terms FDI can be defined as the investment made in one country for the purpose of manufacturing or any service by the people or any organization residing in other country. Suppose you the owner of any reputed firm, let’s say you own Audi at moment, those of you who don’t know, Audi is an automobile brand. So now, you want your business to expand and you want people to buy your goods overseas too. But due to heavy custom levied on goods in importing, you consider setting up a branch in that country and for that you hire some people and provide them the money to start up the company and running. So the investment or the money you offered to start that branch in other country is known as FDI.

So that’s the basic idea. Now understand what the fuss is all about. FDI in India was first implemented in 1991 by Dr. Man Mohan Singh under the FEMA (Foreign Exchange and Management Act) to allow the foreign investors to expand their business markets in India. But then certain reforms were made from time to time to change the percentage of FDI ownership in various sectors such as retail, pharmaceuticals, telecom, etc. So what Modi government did was that they have radically changed the FDI policy to 100% in most sectors even in defence, pharmaceuticals and civil aviation.

Now allowing 100% FDI means that the company overseas can now invest totally on their foreign branch to the company in India and it will be totally be owned by the foreign company. Now as bad as it may seem, it does have positive effects on the society as in early times, the MNC couldn’t find partner companies to invest in India which resulted in lower FDI. But now the companies will openly invest in India which would lead to better quality products, even tough competition, rise in employment, rise in living standards of people, rise in technology. Now, when the industries are being set up in India, then definitely the consumers taste will also change accordingly. So this change in FDI reform as positive towards the economy and would greatly affect the GDP of our nation. It is a step towards nation’s progress and it would require informed citizen to understand what better choices the government is making for them. So read up, comprehend and inform others!

July 23, 2016

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