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Mrunal [Economy Q] FDI and FII difference & which one is better? Print

[Economy Q] FDI and FII difference & which one is better?

Question by a reader: What is foreign institutional investment and how it is different from fdi? In crude terms: FII= when foreign-players invest in shares and stockmarket. FDI= when foreign companies invest in India for manufacturing, production, sales etc. by themselves (100%) or by partnering with some Indian firms.

Whats the difference? Which one is better?

FII players pull out their money from stock-market even for slightest good/bad rumors and invest in in different country. Thats why its called Hot money -was responsible for 1997 Asian financial crisis {2 marker in GS Mains Paper-I, 2007} In 2007, the 2 marker appeared because that year SEBI made some regulation in FII investment via participatory notes to control the hot-money. Also, there were allegations that Pakistan might use it for financial-terrorism using FII via Participatory notes. Although there are tools such as Tobin Tax, to control the flight of hot-money. But still, For development, Governments want and prefer FDI and not FII. Because Its hard to pull out FDI once invested.

URL to article: http://mrunal.org/2012/02/economy-q-fdi-and-fii-differencewhich.html

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