One of the advantages of foreign direct investment is that it helps in the economic development of the particular country where

the investment is being made. This is especially applicable for developing economies. During the 1990s, foreign direct investment was one of the major external sources of financing for most countries that were growing economically. It has also been noted that foreign direct investment has helped several countries when they faced economic hardship.

An example of this can be seen in some countries in the East Asian region. It was observed during the 1997 Asian financial crisis that the amount of foreign direct investment made in these countries was held steady while other forms of cash inflows suffered major setbacks. Similar observations have also been made in Latin America in the 1980s and in Mexico in 1994-95.

For host countries, inward FDI has the potential for job creation and employment, which is often followed by higher wages. Resource transfer, in terms of capital and technical knowledge, is also a key motivator that encourages inward FDI.

In recent years, FDI has been used more as a market entry strategy for investors, rather than an investment strategy. Despite the decline in trade barriers, FDI growth has increased at a higher rate than the level of world trade as businesses attempt to circumvent protectionist measures through direct investments. With globalization, the horizons and limits have been extended and companies now see the world economy as their market. Additionally for investors, FDI provides the benefits of reduced cost through the realization of scale economies, and coordination advantages, especially for integrated supply chains. The preference for a direct investment approach rather than licensing and franchising can also been viewed in terms of strategic control, where management rights allows for technological know-how and intellectual property to be kept in-house.

Benefits of Foreign Direct InvestmentAttracting foreign direct investment has become an integral part of the economic development strategies for India. FDI ensures a huge amount of domestic capital, production level, and employment opportunities in the developing countries, which is a major step towards the economic growth of the country. FDI has been a booming factor that has bolstered the economic life of India, but on the other hand it is also being blamed for ousting domestic inflows. FDI is also claimed to have lowered few regulatory standards in terms of

investment patterns. The effects of FDI are by and large transformative. The incorporation of a range of wellcomposed and relevant policies will boost up the profit ratio from Foreign Direct Investment higher. Some of the biggest advantages of FDI enjoyed by India have been listed as under: Economic growth- This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country. Trade- Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country. Employment and skill levels- FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India. Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. It helps in developing the know-how process in India in terms of enhancing the technological advancement in India. Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market.

INDIAS FDI POLICY FRAMEWORK MOST LIBERAL, SAYS JAITLEY Date : 25 Sep 2003 Location : New Delhi

Shri Arun Jaitley, Union Minister of Commerce & Industry and Law & Justice has said that India has one of the most liberal policy frameworks for foreign direct investment (FDI) and foreign technology transfer. Entry under automatic route only requires post-entry notification and no prior approval. FDI up to 100% is permitted on the automatic route in most sectors. There is no restriction on repatriation of original investment as well as returns on investment. Many new sectors have recently been opened to FDI, such as integrated townships (100%), insurance (26%), airports (100%), mass rapid transit systems (100%), etc. Foreign technology collaborations are also allowed on the automatic route within specified ceilings. Recently, companies who have entered into foreign technology collaboration agreements on the automatic approval route have been permitted (irrespective of the extent of foreign equity in the share holding) to make royalty payments @ 8% on exports and 5% on domestic sales without any restrictions on the duration of royalty payments. The Minister said this while speaking at an Investors Meeting in Hong Kong yesterday. "Indias foreign exchange reserves exceed US $ 85 billion, with accretion of US $ 20 billion last year alone. The balance of payments position has strengthened considerably. Exports have registered 19% growth during 2002-03, against a target of 12%. Indias share in service exports has double in the past ten years", he said. On the overall policy front, Shri Jaitley highlighted several major initiatives that had been taken. These include " industrial delicensing, simplification of investment procedures, enactment of competition law, liberalisation of trade policy, full commitment to safeguarding intellectual property rights, financial sector reforms, liberalisation of exchange regulations, and above all a liberal, attractive, and investor-friendly regime for investment". "The trade policy has also been greatly liberalized and most items have been placed on the open general licence system. The tariff levels have been brought down substantially (the present

average tariff level is 25%) and are gradually moving towards the ASEAN levels. Indias trade policies are fully WTO compatible", Shri Jaitley said. Shri Jaitley also said that Government of India had been attaching very high priority to the development of infrastructure. "The telecom sector in India is amongst the fastest growing in the world today. Similarly, a lot of progress is taking place in the roads and ports sector. The government has undertaken a US $ 12 billion project for development of national highways. The government has also announced the Special Economic Zone to attract private investment in industrial infrastructure. This scheme offers a lot of fiscal incentives and other incentives that are comparable to those offered elsewhere in the world", he said.