FDI better than FII-An Overview

FII stands for foreign institutional investor's which invests in the assets of other countries other than where these are based. FII's play an important role in the economy of a country because they invest the considerable amount of money in the markets. They act as a trigger and even a catalyst in the market performance by encouraging the investment from all classes of investor's which leads to the growth of the financial markets. They also include insurance companies, mutual funds, pension funds, investment banks and more which will be important source of income in developing economies. Even in India we have FIIs but have limits on the total value of assets they can purchase and shares they can have, which helps in limiting the influence that they can have on a company and financial market and reduces the damage that might occur during the crisis.

In India we find FIIs because we have a high-growth economy and attractive corporations to invest. To enter the market first they must register with securities and exchange board of India (SEBI). In India they can invest only in capital markets only through country portfolio schemes. They can invest only up to 24% of the capital in the shares of any company and they can invest more Upon the resolution of companies. They cannot buy stocks whereas can purchase the shares and can enjoy long term growth.

FDI stands for foreign direct investment in which the investor or a business of one country invests into the company or a business in another country and takes up the controlling ownership on the business. Foreign companies are involved in day-to-day operations in the other country. They don’t only bring money and workforce but also technology, skills, and knowledge. They can only enter a specific industry; they are not allowed into every industry.

 FDI is the important source for the development of the economy of India. This adds advantage to both the investor and foreign host by subsidies, low labour cost, tax incentives to the business and increase in employment, increase in capital etc to the host. Here the host is generally known as multinational companies (MNCs) or multinational enterprises (MNEs). They have access to production, resources and reduces the cost of production. They cannot invest in stock markets. The investment through FDI can be made in two ways, automatic route in which the investor from India need not to take any approval from the government and the other is the government route in which the investors must take permission from the government and those proposal are known as administrative ministry.

FBI is preferable than FII because they are considered as most beneficial investment for the economy. FDI only targets only specific enterprises and increases their capacity, productivity, and controls its management. The capital is translated into productivity. Whereas the FII increases its capital availability rather than the capital of the enterprise. FDI is a long-time investment and brings long term capital and FII is short term mostly in capital markets. The investment made by the FDI can't be taken back immediately whereas the money invested by FII can be taken back anytime and is known as "Hot Money" and they create a situation of instability. FDI is considered more stable because it's a long-term investment and brings capital as well as jobs whereas the FII is short term and may leave anytime though they stabilize the capital, but more risk is involved in it.

Thereby we can conclude that FBI is better than FII because both have their importance but FDI enhances the growth of infrastructure, technology, skills, and growth is long term and higher GDP. India is the 9th largest FDI recipient according to the world investment report 2020 and India is the biggest host in South Asia.