Foreign direct investment offers the following benefits:
(i) FDI increases the level of investment by supplementing domestic capital. The host country gets scarce capital resources from abroad. As a result, FDI contributes towards the development of infrastructure. Industry and service sector in the host country. FDI helps to enhance business activity and raise the level of economic development.
(ii) FDI facilitates transfer of technology, machinery and equipment to the host country. Advanced foreign technology helps to reduce costs and improve quality of products and services. Local firms get the opportunity for technology up gradation.
(iii) FDI can create a managerial revolution in the host country through professional management and employment of sophisticated techniques of organisation and management. Local firms get access to world class management. Local firms get access to world class management and corporate practices.
(iv) FDI helps to boost employment and incomes in the host country through establishment of new industries and development of ancillary industries. Higher production and income in turn increase the tax revenue of the government. Material and human resources can be utilised optimally.
(v) FDI can help the host country to increase its exports and reduce imports. These add to the foreign exchange resources of the country and improve its balance of payments position. In fact, the Government of India announced economic liberalisation in July, 1991 due to foreign exchange crisis.
(vi) FDI may help to increase competition and break domestic monopolies in the host country. It can overcome trade barriers like tariffs and quotas. FDI can make Indian industries globally industries globally competitive.
(vii) FDI offers benefits to the home country also. There is inflow of foreign currency in the form of dividend and interest. Exports of technology, machinery and equipment help to enhance industrial activity employment in the home country.
(viii) There is greater choice of products by consumers. Their standard of living is likely to improve due to better quality and wider choice.