FDI versus FII

India is gradually entering that stage from where it’ll be able to grow by leaps and bounds. All figures point in that direction – the GDP growth, the inching high of inflation, and now the FDI amount. FDI, or Foreign Direct Investment, has seen doubling from $3.23 billion in 2004-05 to $7.23 billion in 2006-07 till Nov ’06 [ref: today's (Feb 22) ET, Kolkata edition].

Experts say the whole year figure of 2006-07 ought to be close to the magical $10 billion than what is actually recorded, because a fair chunk of it is actually reinvestment of profits earned by foreign companies and therefore not noted by the government in its calculations.

FDI is a measure of confidence on the part of foreign companies for the reason that, compared to FII or Foreign Institutional Investment, this is spent on actual operations on the ground like acquiring or building tangible assets, starting new plants, establishing new firms, etc.

Since in most cases FDI stays invested in our country, the amount so spent or the assets built cannot leave unlike FII. In other words, FDI translates into long-term benefits for the people of the country. For the record, FDI inflow into China hovers around $50 billion annually.

The probability of similar things happening to India too is the reason why these days the investment figures like Wal-Mart’s billion dollars entry into retail market or Salim Group’s proposed Rs.25,000 crore spending for infrastructure projects in Bengal over a decade boggle the mind.

In sharp contrast, FII is termed ‘hot money’ because here the sum is investment for Indian stocks without any longer term commitment, which means this amount may and does leave with the twinkling of an eye if the going gets tough.

Economic analysts opine that at long last there is a real chance of FDI overtaking FII amount, which is a sure indication that India has earned its rightful place in global investment arena.

We’re beginning to see the early fruits of large-scale investments in the form of expansion in job market. As more money flows in, there’ll be requirement of people to ensure that there is matching return on investment. It is then that India will slowly but surely move away from hitherto typical Indianised thinking that earning money is bad.

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