What is FDI?
FDI means foreign direct investment in the form of physical assets or financial assets etc.
How does FDI increases growth rate of the country?
Let us assume there is only 1 bank in the country X.
Bank has 100 Rs. Capital.
There are two businessmen in the country.
Both of them need 70 Rs. to expand their businesses.
But capital available to them is just 100Rs.
So both of these businessmen will fight to get 70rs. For their businesses.
As the demand for capital increases, bank will increase the interest rate.
This increases cost of capital.
But if someone outside the country parks 40 Rs in country X, then bank in the country X will have sufficient funds to lend to businesses.
So businesses don't have to compete for capital.
Both businesses can expand creating jobs and economic growth.
RECENT HAPPENINGS:
In the recent time, government has reduced certain restrictions on FDI in 15 sectors in India.
I hope this will certainly give boost to the growth of Indian economy.
Is FDI in retail good or bad?
ReplyDeleteI think it is good......
Delete60% people in india are directly dependant on agriculture....
If companies such as Walmarts come to India then they can directly procure agricultural produce from farmers..
Retail companies have their own cold storage chains...
So the perishable item will not rot...
Middle men will go out of job. This will bring down extortion of farmers.
As More perishable items reach market, supply will remain intact and inflation won't happen due to shortage..
Farmers can make good money.
As rural economy grows, industrial sector will also grow, bringing more jobs.
This way Government can commercialize the agricultural sector so that people stay in the farming.
This will reduce the burden on mobilization of people from rural area to urban area, which in turn will bring down infrastructure load on cities.
because Having more money at hand, farmers will send their children to schools and this will drive up literacy rate. we know that better education always pay best interest.Better education will give rise to better society. And better society will, in turn ,give rise to better political system of the country.
I think I should write one article on this...