Foreign investment

For the continued, sustained economic development of a country, foreign investment is extremely crucial. In the free market and capitalist structure that world economies operate in, foreign investment brings new opportunities. Foreign investment nourishes the cash flow and generates employment. Foreign investment is an important factor in the steady development of a country. This leads to the economic prosperity of the domestic company and the domestic economy. The transaction of cash flows happens amongst various sized companies overseas and domestic. The article provides information on foreign investment, types of FDI, FDI in the Insurance Sector, and the importance of FDI.

Foreign Investment

Foreign investment refers to the cash flow from external sources, situated abroad. This foreign investment can be carried out by overseas banks or other financial institutions. Foreign companies would either buy stocks and shares of domestic companies or inject investments for the development of domestic companies. Usually, they are motivated by:

• Increasing business portfolio
• Participate in the international market
• Exploit globalised trends
• Expand available resources

Foreign investment is carried out by two methods:

• FDI or Foreign Direct Investment
• Portfolio Investment

The differences between the two methods are given as below:

Foreign investment involves lending credible support to the management system, dissemination of innovative ideas and technology, and joint ventures. It is an efficient way of promoting productivity and reliable economic infrastructure. 

Types of FDI

Foreign Direct Investment or the FDI is a type of foreign investment. In this method, abroad-based multinational companies or enterprising individuals buy shares or assets or invest in domestic companies. FDI involves various modes of functions. It involves strategic acquisitions and beneficial mergers. FDI also involves creating and maintaining new structures and increasing business opportunities. There are different types of FDI. MNCs operate through these types of FDI. The article has provided information on the types of FDI:

• Conglomerate FDI- Amidst the types of FDI, this involves investors investing in separate industries. It means that whichever industry the investor works in is different from the type of industry they are investing in. 
• Vertical FDI- This type of investment involves investing happening inside the same company but branched in different areas. The industry may or not be the same.
• Platform FDI- Here, the company invests in one foreign company. The output received from this investment is then exported to another country.
• Horizontal FDI- In this type of investment, manufacturing is the main focus. Here, similar products are produced both at the overseas market and at the domestic market. 

FDI in Insurance Sector

It is interesting to note that FDI is also extended to the insurance sector. In India, the market size of the insurance sector has increased to 48.04% from 47.96%. The insurance market is growing steadily and is a lucrative domestic market. Therefore, FDI in the insurance sector is not a big leap. The benefits of pushing for more FDI in the insurance sector were recognised by the government. Therefore, it has actively promoted more FDI in the insurance sector of India. India will greatly benefit from this increased activity. The limit of FDI in the insurance sector was increased to 74% from 48%.  

Important of FDI

There is no doubt that foreign investment is extremely important for the economic benefit of any domestic market. The important of FDI is shown in the following:

• Development stimulation
• Provides tax incentives
• Increases national GDP
• Reduce costs
• Transfer and development of resources
• Employment generation
  

  Conclusion

  FDI or foreign investment in India is a booming operation. India’s economy is largely supported by foreign investments. There has been a reported 27% increase in FDI. It is amongst the largest FDI recipients in the world. In 2021, it was estimated that FDI in India will grow to $1.65 trillion. Foreign investment involves buying domestic assets or purchasing ownership of shares in a domestic company. The size of the ownership stake through the investments made by the foreign companies determines the degree of influence.