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Unit 23: Role of Foreign Capital - FDI and Multinational Corporations

(iii) There is also creditor capital from private sources abroad invested in recipient country’s Notes
joint stock companies.
(b) Foreign Direct Investment : The Foreign Direct Investment (FDI) in any country abroad is the
net inflow of investment (capital or other), in order to acquire management control and profit
sharing (10% or more voting stock) or the whole ownership of an accredited company operating
in the country receiving investment. The foreign direct investment generally encompasses the
transfer of technology and expertise, and participation in the joint venture and management.
Highly productive advantages of foreign direct investment have been constantly being harvested
by both governmental and private companies and organizations of all over the world.
The foreign direct investment is profitable both to the country receiving investment (foreign
capital and funds) and the investor. For the investor company FDI offers an exclusive opportunity
to enter into the international or global business, new markets and marketing channels, elusive
access to new technology and expertise, expansion of company with new or more products or
services, and cheaper production facilities. While the host country receives foreign funds for
development, transfer of new profitable technology, wealth of expertise and experience, and
increased job opportunities.
Owing to the ever-increasing globalization of businesses of almost all sectors, liberalization of
trade policies, and loosening of foreign investment restrictions, the foreign direct investment
(FDI) has been quite revolutionary and vital for faster economic growth of most of the developing
and developed countries of all across the world for last few decades. Supported by refinement
in the information and telecommunication technology, and the increasing trend of Mergers
and Acquisitions, the FDI is to receive tremendous impetus in various sectors in the future
times to come, especially in the developing countries of the world. It has been observed that
more than two-thirds (2/3th) of direct foreign investment is made in infrastructure, commercial
and residential buildings, machinery, equipment, mines, and land.
FDI India
The steadily growing one of the major economies of the world, India has been enjoying huge
and regular FDI from diverse investors of all around the world for the last few decades. According
to a recent UNCTAD (United Nations Conference on Trade and Development) Survey, India
has emerged out as the second most famous and popular destination in the world for FDI, after
China. Majority of this foreign direct investment in india is made in the sectors of
telecommunication, computer hardware and software, construction, and services, by investor
companies from USA, UK, Singapore, Mauritius, etc. The foreign direct investment in india can
be made in a variety of ways and in a rather wide range of economic sectors. Worldwide
prominent Global Jurix has been helping individuals, associations, private and public
companies/organizations, and institutions of diverse sectors for making their cherished FDI in
India, through both the Automatic and Government Routes, for a long time.
There are three main categories of FDI :
(i) Equity Capital : It may be defined as the value of the Multinational Corporations (MNCs)
investment in shares of an enterprise in a foreign country.
(ii) Reinvested Earnings : The MNCs share of affiliate earnings not distributed as dividends or
remitted to the MNCs.
(iii) Other Capital : The short-term or long-term borrowing and lending of funds between the MNCs
and the affiliate of the MNCs.
Types of FDI : The FDI inflows are of three types :
(i) Market-seeking : The size of the local market is the main focus of these FDIs.
(ii) Efficiency-seeking : Economic efficiency and commercial logic dictate that capital should flow
from the relatively less-profitable developed countries to the relatively more profitable
developing world.

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