FDI v/s FII (India and China)

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Introduction

FDI (Foreign Direct Investment) can be defined as the physical investment being made by a firm in one country for building a factory in another country.

FII (Foreign Institutional Investment) involves the investments or the investment companies, that are not located in the territory of the country in which they are investing. These are the outsiders in the financial markets of the company.

Economies, which includes China, South Korea, Singapore and the Philippines also known as “Asian Tigers”.

FDI in India and China

China’s Investment Regime

According to the Chinese law, the foreign investors can
choose a variety of investment entities, the destination of
investment may be limited.
Under the chinese law are divided into three broad categories
i.e. (1) prohibited, (2) restricted, and (3) encouraged.

India’s Investment Regime

In India, FDI is governed with the number of laws which
includes the Foreign Exchange Management Act of 1999
(FEMA) for all FDI and the Stock Exchange Board of India
(SEBI).

Trends in FDI

The flow of FDI has increased, especially in the emerging economies around the world, with the developed countries still accounting for the largest share of FDI inflows.

FDI, a way to internationalize apart from assuming FDIs to be an investment channel and a method to reduce operating costs.

Countries praise FDI for raising standards and welfare in recipient countries and are hence, lowering the standards to attract FDI.

The access to low- cost labour, markets and natural resources are some of the trends that are reinforcing traditional impulses for the foreign direct investment.

Conclusion and Recommendations

Domestic sources of outside finance are limited in many countries, hence, foreign capital has become increasingly significant source of finance.

In developing countries like India foreign capital helps in increasing the productivity of labour and to build up foreign exchange reserves to meet the current account deficit.

The investment climate in India has become much friendlier today than previous decades.

FDI is not needed in India as compared because it is getting more money from the FIIs. It accounts for around $12 billion.

In order to attract the required amount of FDI and FII, government has put in its practice a liberal and more transparent FDI and FII policy.