Foreign investment is a panacea for the economic ills of a developing country. evaluate.
Foreign capital and technology can play a very important role in the socio-economic development of a nation. It is a very significant contribution to the development of the developing countries. Foreign capital and technology have been playing a significant role in the development of a number of developing countries. In economic development, foreign investment is playing an increasing role. Substantial changes in the international capital flows is the result of Economic reforms and the far-reaching political changes.
By facilitating essential imports required for carrying out development programs, like capital goods, know-how, raw-materials and other inputs and even consumer goods is one of the ways by which foreign capital helps accelerate pace of economic growth. When the export earnings are insufficient to finance vital imports, foreign capital could help reduce the foreign exchange gap.
Foreign investment may also help increase a country’s exports and reduce the import requirements if such investments take place in export-oriented and import-competing industries. The IPR 1948 duly recognized the role of foreign investment in India’s industrialization. However, it emphasized that ownership and control of all enterprises involving foreign equity should lay in Indian hands. The Foreign Investment Board was set-up in 1968 to scrutinize and approve foreign collaborations. The coming in to being of (FERA) Foreign Exchange Regulations Act 1973 put further restrictions on foreign investment.
FERA forced foreign equity to come down to 40 percent or less or else withdrawal from the country altogether and FERA emerged as a major barricade for fresh foreign investment. However, FERA did not have any positive impact. There was not much improvement in the balance of payments. Royalty and technical fees increased, dividend levels remained relatively constant and new investment fell.