Foreign Direct Investment and Its Impact on India's Economic Growth

Abstract

One of the most important ways for nations to integrate into the global economy and promote economic growth and development is through foreign direct investment, or FDI. It means that an organization or individual from one nation invests resources into the assets or commercial ventures of another nation. Foreign direct investment (FDI) denotes a long-term stake and a substantial amount of control or influence over the management of the foreign firm, in contrast to foreign portfolio investments, which consist of passive ownership of securities. Intra-company loans, reinvestment of earnings, and ownership of equity are ways to attain this control. FDI is so more than just a cash investment; it's a calculated action that has the power to influence the host nation's economic environment.

Three main components make up foreign direct investment (FDI) according to the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD): equity capital, reinvested earnings, and intra-company loans. Acquiring shares in a foreign company signifies ownership and control through equity capital. The investor's portion of profits that are reinvested in the overseas business to support development and expansion, as opposed to being sent home as dividends, is known as reinvested earnings. Funds borrowed or lent between the parent business and its overseas affiliates are referred to as intra-company loans, and they reflect continuing financial exchanges inside the corporate network. FDI may be divided into two primary categories: vertical FDI, which involves a company investing in a host nation to move upstream or downstream in different stages of production, and horizontal FDI, which involves a company replicating its home country-based activities at the same point of the value chain in a host country.