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While foreign direct investment (FDI) can bring significant benefits to the countries, there are also several challenges associated with it. Examine.

Topic:  Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

5. While foreign direct investment (FDI) can bring significant benefits to the countries, there are also several challenges associated with it. Examine. (250 words)

Difficulty level: Easy

Reference: Investopedia

Why the question:

The question is part of the static syllabus of General studies paper – 3 and mentioned as part of Mission-2023 Secure timetable.

 Key Demand of the question: 

To write about the role played by FDI in the Indian economy and challenges associated with it.

Directive word: 

Examine – When asked to ‘Examine’, we must investigate the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications.

Structure of the answer:

Introduction: 

Begin by defining Foreign Direct Investment (FDI).

Body:

First, Write the various aspects of FDI – international flows of capital, diversification of lending and investment, global integration of capital markets, allows the transfer of technology and can also promote competition in the domestic input market etc. Substantiate with examples.

Next, regulatory barriers, political risk, cultural differences, economic risk, nationalistic sentiments, infrastructure challenges, and labour issues.

Next, write about the steps that are needed mitigate the above issues maximize the benefits of FDI.

Conclusion:

Conclude by writing a way forward.