What is the full form of FDI

FDI: Foreign Direct Investment

FDI stands for Foreign Direct Investment. It is the investment made by a company based in one country into a company based in another country. It differs from portfolio flow wherein a foreign company invests in the equities listed on the stock exchange of a country.

It is called direct investment as the investor is seeking control or influence over a company or entity of a country. The foreign direct investment is usually made into countries which have open economies, high growth prospects and skilled workforce at relatively cheap rates.

Benefits of FDI

FDI has a number of benefits; some of the major benefits are given below:

• It generates employment in the country
• It brings fresh capital in the country
• It improves forex position of the country
• It brings new skills and technologies into a country
• It promotes exports and increases tax revenues
• It gives the investor company access to foreign market of a country
• The investor company can reduce the cost of production if labor is cheap in the target foreign market.
• The investor company can utilize the natural resources of a country like metals, fossil fuel etc.

Types of FDI

There are various types of FDI; two commonly discussed types of FDI are given below:

Greenfield FDI: It refers to the FDI where instead of investing into existing company of a country the foreign company establishes a new company as its subsidiary. For example, Google, Facebook and Amazon have set up their branches in India.

Brownfield FDI: It refers to the FDI where a foreign company invests in the existing business in a country. It does not establish a new office or production facility. It purchases the existing production facility in a country to grow the existing business. For example, Vodafone bought Hutch.