Foreign Direct Investment in India and China- Some Lessons for India

Abstract

International flow of capital is not a new phenomenon. Foreign Direct Investment (hereafter, FDI) is generally viewed as an engine for global development and transfer of technology. In order to avail the benefits ofFDI through MNCs, the developing countries, including India and China have started modifying foreign - related Trade and Investment Laws in favour of the prospective investors. Foreign Direct Investment is defined as, "an investment involving a longterm relationship and reflecting a lasting interest and control by a resident entity in one economy ( foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (foreign direct enterprise or affiliate enterprise or foreign enterprise. ". FDI implies thatthe investor exerts a degree of influence on the management of the enterprise resident in the other economy. AF oreign direct investor may also have an effective voice in the management of another business entity by means of acquiring other than an equity stake. For example, through franchising, licensing, turnkey arrangements, sub-contracting. FDI occurs mainly in two forms: namely, Greenfield investment and Mergers & Acquisitions. The former involves the establishment ofanew enterprise. On the other hand, the latter is related to the acquisition of existing firms. Since Greenfield form of FD I is backed by many advantages, there is a tough competition among developing countries to tum more FD I to theirrespective countries through the green field mode.