Introduction:

The capital which come from other countries is called foreign capital almost all country depend upon foreign capital at the beginning of development. Foreign Direct Investment (FDI) refers to the investment made by a company from one country into another country, in the form of establishing business operations, acquiring assets, or taking a significant ownership stake in a foreign company. FDI can have significant impacts on both the host and home countries. Here are the some merits and demerits of FDI:

Merits of F.D.I

• It is necessary to invite foreign capital when domestic capital is in advocate for the purpose of economic growth.
• Foreign capital supplements domestic savings and harness them to secure a rapid rate of growth.
• It provide technological expertise and helps in building a modern industrial structure.
• It paves the way for the investment of domestic capital into new and desirable channel not attempted in the country before the lack of bold entrepreneurship.
• It provides valuable foreign exchange.
• It eases a pressure on the balance of payments
• It can help developing countries in breaking the vicious circle of poverty
• During the early stage of economic development of backward countries the vast natural resources would be exploited quickly with foreign capital.
• Foreign capital helping to import some of the essential goods of consumption can help contain inflationary pressure in the economy making the process of development relatively easy and smooth.

Demerits of F.D.I

• The foreign capital may result in the drain of the backward countries wealth.
• Foreign capitalist exploits our valuable natural resources for their own benefit instead of promoting economy development in the country and thus lead to a serious drain on our limited resources.
• It is observed that foreign capital in its way bring in developing countries the economic and political domination.
• It is seen that historically foreign capital instead of helping backward countries to help them to industrial generally tried to exploit the raw material like minerals and industrial raw materials.
• The foreign companies in developing countries reserve higher managerial and technical post for their own Nationals, thus adequate opportunities of training the people in developing countries.
• Foreign capital can be very Pre-judicial to the natural interest of developing countries.  In times of emergency since foreign capital controls basic and heavy industries they can create difficulties for developing countries.
• It results in great dependence of developing countries on foreign companies for intermediate, spares etc.
• The payments of royalties, technical fees etc. exhaust our foreign exchange reserve a stage comes when the outgoing exceed the receipts of foreign capital.
• Undue reliance on foreign technical knowhow damages local relatives.

also read: explain the objectives and functions of W.T.O