FDI v/s FII

My last blog was concerning about FDI in India. Here, I come back with my comparative study between FDI an FII and which one is better for our country.

Firstly let me tell a bit about FII. It stands for Foreign Institutional Investments. Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. In FII, the companies only need to get registered in the stock exchange to make investments whereas in FDI there is a long procedure to enter a country. FDI Flows in primary market whereas FII flows in secondary market. The money invested by FII is known as ‘HOT Money’ as the investors have the liberty to sell it and take it back.

FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment for the whole economy. Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. In an FDI, the capital inflow is translated into additional production. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise and where money can be taken back also easily.

Hence, the investment by FDI’s can’t take back money immediately hence it is preferred more over FII. FII can create a situation of instability in the country’s economy. Currently large amount of FII investment has exit the SENSEX market and hence few days back SENSEX went down by about 6,000. Hence, In a country like India where development is the foremost important thing, we need to pay more heed to FDI over FII’s.

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