FDI and FII difference
& which one is better?
Reform: FDI vs FII definition
Chindu proposed in Budget speech that
- We need to remove the ambiguity on what is FDI and what
is FII,
- I propose to follow the international practice:
- if an investor has a stake of 10 per cent or less in a
company, it will be treated as FII and,
- if more than 10%= FDI.
- Later Chindu formed a panel under Arvind Mayaram for
giving clear definitions to FDI and FII.
What’s 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.
- That’s why it’s 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 It’s hard to pull out FDI once invested.
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