FDI - An Analysis
Most of the underdeveloped countries suffer from low level of income and low level of capital accumulation. So, these countries require foreign capital to achieve rapid industrialisation and economic development. Most of the developed countries of the world make use of foreign capitals i.e., United States of America borrowed heavily in the 19th century and is in turn called upon to become the major lender of 20th century. Ever England borrowed from Holland in the 17th and 18th centuries and in turn came to lend to almost every other country in the world in the 19th and 20th centuries. It is true that every country in its early phase of development needs foreign capital ...view middle of the document...
It comprises of three components:
• Inter Government Loans – The recipient countries obtain loans at concessional terms and conditions from friendly countries. The concessions are in the form of rate of interest lower than the market rate of interest, long repayment period along with a grace period
• Grants – The Grants are defined as “something for nothing” to the recipient country. The Grant element of the capital inflow must be at least 25% to qualify for the term ‘Aid’. It is because of the non-repayment nature of grants loans to the developing countries.
• Multilateral Loans – The two affiliates of World Bank, the International Development Association (IDA) and the International Finance Corporation (IFC) and also the International Monetary Fund (IMF) grant loan to the developing countries.
b) External Commercial Borrowings
These are loans floated by the financial institutions in the external commercial market. It also includes loans from commercial banks and other financial institutions, suppliers, creditors, Bonds, FRN and loans from Semi-Government Export Credit Agencies, IFC (W), BEG Germany, CDC, the UK and Nordic Investment Bank. These loans are procured in the market rate of interest.
c) Non-resident Indian Deposits
The NRIs can bring their savings to India to keep as a deposit in Banks in various accounts. In 2001-’02, the inflow of the NRI deposits was US $25,151 million.
2) Private Capital Flows