Ever since I started digging deep into the XYZs of understanding the world economics; I felt the urge to at least start reading about the basic terminologies and fundamentals; a plenitude of which was always present in all papers, books, journals et al. One thing that immediately caught my eyes and ears was the frequency of the usage of this "FDI & FII" thing everywhere. So here's a post that will try to keep things in perspective. Read on...
With liberalization of economies of the world and the rapid globalization, markets are opening up for direct investments from companies and firms of different countries to spur economic growth in the receiving market / economy / nation. And this is what has given rise to the terminologies FDI & FII.
Take for example; a company based in Germany buys a stake in an Indian company leading to a rather fast pace development and revenue generation, benefiting both the organizations. This is what we call FDI or FOREIGN DIRECT INVESTMENT.
Buying stakes doesn't entitle the investing company to take over the parent company; rather the parent enterprise is the plenipotentiary in all matters. And this investment in an aborigine company by a foreign company gave rise to the term Multi-National Company (MNC).
Example of such a collaboration is BAJAJ-ALLIANZ ( Bajaj being the parent company and Allianz being the German financial services giant).
Some of the primary advantages of FDI are:
- International Trading by transfer of knowledge, expertise & skills.
- Plays a catalytic role in the development of both the enterprises and the parent economy.
Sectors attracting high FDIs are IT, TELECOM, PHARMACY, REAL ESTATE, AUTOMOBILE INDUSTRY etc.
MORE THE FDI, MORE WOULD BE THE SANGUINENESS OF AN ECONOMY.
Coming to FII; the starting 'F' and the ending 'I' connote the same idea as in FDI; the difference being only in the middle 'I', that stands for INSTITUTION, making FII = Foreign Institutional Investment, where the Institution/Investor is a registered operator in a country other than the one in which it is currently investing.
Such investors include Insurance companies, mutual funds etc.
Such companies invest in the parent economy's finance markets; with constant regulation by some regulatory authorities in the receiving end economy. Example of such a body in India is SEBI = Securities & Exchange Board of India.
I hope the next time you witness these words anywhere, you'd be able to construe the ideas more clearly.
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