What is FDI and why there is so much hype about it?

“The company has its main headquarters in USA, the factories are set up in China and the labour and the BPO originates in India.” Isn’t this very common to hear? these companies that work in different areas with each area being involved in a task are known as MNC or Multinational Companies. These companies are the ones who invest in Foreign Direct Investment. That is, either they expand their working area from the mother country throughout the world as in above example or they buy companies based in different countries or they also collaborate with other companies making them a MNC too.

What is FDI exactly?

FDI is Foreign Direct Investment. This pertains to the direct investment made by a company in another country by buying or by collaboration with any other company of that nation.


This means that the company’s official headquarters are in the mother country from where the company emerges and then the company for the different departments like say factories located in a country and the telecommunication services in another country. The selection of different countries is mainly targeted upon the skill and cost of labour and also the infrastructure. Hence we find companies that provide home based online work to people in another country where they find the labour cheap. These kind of companies also set up their BPOs or Call centres in other countries where they find the labour cheap. They also give work to the unskilled poor who can do certain tasks at a cheaper rate than the mother country.


The MNCs here buy the local settled companies and give the owners a good amount of money. Then these MNCs use the company’s factories, labour and help to increase the productivity at a cheaper rate. They benefit people by giving them increasing the number of employees and their services.


Here MNCs try to collaborate with the local companies either for labour or infrastructure. They take partnerships with these companies and collaboration works well together as the MNCs bring the latest technology in and the local companies provide the MNCs with cheap labour. The number of jobs increases hence there is an increase in the rate of employment in the country. Companies like Tata Motors and Infosys are a result of successful collaborations with MNCs.

Why there is so much Hype about FDI in India?

The answer of this particular question lies on the status of the economy and development of the target country. There are many benefits and opportunities for the target nations when they indulge into such a project. They derive the much needed technological and economical development. They observe development in the aspects of the economy like aviation and retail.


  1. Increased number of jobs, hence people are at least employed and can bring or take in a certain amount of money every month to their homes.
  2. Successful collaborations of local companies with the MNCs give India a new peek into the latest technology and new ventures.
  3. The competition from the MNCs located in other countries makes the local companies work in a more productive manner.
  4. The consumers are guaranteed of better quality products as the MNCs produce world class quality products.
  5. The prices of products in the local and international markets tend to become equal due to competition.
  6. These kind of business ventures make relations between two or more countries more amicable and cordial.



India is considered the most important FDI target after China. The sectors like telecommunication, hardware, software, hospitality, education, medications, Real estate, Jewellery and construction have attracted most of the MNCs for FDI in India.

Also read about FDI in Retail and its analysis


  1. One of the largest retailer of the world, Wal-Mart made a decision to do a Direct Investment in India and its assets to develop their services and products. India has permitted 51% FDI in the retail of multi brand products But there was a great clash on this as the alliance parties of the government are not ready to accept FDI investment of Wal-mart in India.
  2. Recently, the Union Civil Aviation minister Ajit Singh met the PM of India, Dr. Manmohan singh and also the finance minister Mr. Pranab Mukherjee for discussing FDI in the aviation sector. The government is probably going to bring the matter of FDI in aviation in the union cabinet. It is been said that as much as seventy percent of FDI is proposed for private general aviation and cent percent FDI is proposed in Cargo airlines.



Government should permit more and more MNCs into our country with some control, ensuring that it benefits local businesses and increase employment. As what the MNCs need is labour in surplus amounts both skilled and unskilled which our country has in plenty. We in turn are in requirement of the latest technology and infrastructure which the MNCs will provide us with. We need to satisfy all the political parties and pressure groups with the fact that MNCs will provide people of our country with a lot of benefits like providing them employment and they will also provide the country with economical and technological benefits through latest technology and infrastructure.


  • Knowmics

    I have only one question for MMS/INC the timing of FDI, why now? It could have been done one year ago. The PIL filed in suprim court will again end up canceling all coal license like 2G. The timing reminds me “Wag the dog” policy, just to draw all the media attention from Coal-mart to Walmart.

  • Gaurav

    Not able to get the root problem relating FDI.
    What is the current FDI allowed for Single brand retailing and Multi brand retailing ?