{"id":1469,"date":"2020-07-09T18:07:24","date_gmt":"2020-07-09T12:37:24","guid":{"rendered":"https:\/\/blog.tickertape.in\/?p=1469"},"modified":"2021-04-06T11:29:52","modified_gmt":"2021-04-06T05:59:52","slug":"impact-of-fdi-on-the-environment-and-vice-versa","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/","title":{"rendered":"Impact of FDI on the environment and vice versa"},"content":{"rendered":"\n<p>Foreign direct investment fuels economic growth. To capitalise on this, governments across the globe revise their foreign investment policies from time to time so as to attract more investors. This is especially true for developing economies that face a shortage of capital and lack of advanced technology.<\/p>\n\n\n\n<p>Though FDI offers several benefits that are discussed later, it also has\ncertain downsides. Cutting to the core, the impact of FDI is mostly felt on the\nextracting industry and environment at large. In fact, if analysed well, you\nwill find that both FDI and environment impact each other. That is what we\u2019ll\ndiscuss in this article.<\/p>\n\n\n\n<p><strong>The article covers:<\/strong><\/p>\n\n\n\n<p><a href=\"#Issues\">Environmental issues caused by economic activities<\/a><\/p>\n\n\n\n<p><a href=\"#Stand\">Where does India stand?<\/a><\/p>\n\n\n\n<p><a href=\"#FDI\">FDI meaning<\/a><\/p>\n\n\n\n<p><a href=\"#Advantages\">Advantages of FDI<\/a><\/p>\n\n\n\n<p><a href=\"#Connect\">How FDI and environment connect<\/a><\/p>\n\n\n\n<p><a href=\"#Way\">What\u2019s the way forward?<\/a><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/#Environmental-issues-caused-by-economic-activities\" title=\"Environmental issues caused by economic activities\">Environmental issues caused by economic activities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/#Where-does-India-stand\" title=\"Where does India stand?\">Where does India stand?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/#FDI-meaning\" title=\"FDI meaning\">FDI meaning<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/#Advantages-of-FDI-for-a-domestic-company\" title=\"Advantages of FDI for a domestic\ncompany\">Advantages of FDI for a domestic\ncompany<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/#Advantages-of-FDI-for-a-foreign-company\" title=\"Advantages of FDI for a foreign\ncompany\">Advantages of FDI for a foreign\ncompany<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/#How-do-foreign-direct-investment-and-environment-connect\" title=\"How do foreign direct investment\nand environment connect?\">How do foreign direct investment\nand environment connect?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/#What-is-the-way-forward\" title=\"What is the way forward?\">What is the way forward?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/impact-of-fdi-on-the-environment-and-vice-versa\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h3 class=\"wp-block-heading\" id=\"Issues\"><span class=\"ez-toc-section\" id=\"Environmental-issues-caused-by-economic-activities\"><\/span><strong>Environmental issues<\/strong> <strong>caused by economic activities<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The earth\u2019s surface temperature has been rising due to the widespread\nindustrialisation that began in the 2<sup>nd<\/sup> half of the 18<sup>th<\/sup> century. Add other\npressing environmental issues across the globe to this and you will have a\nnear-to-perfect recipe for gradual destruction.<\/p>\n\n\n\n<p>One area of concern is the emission of carbon dioxide. In 2018, 36.7\nbillion metric tons of carbon dioxide was emitted globally. China led the list\nof the top carbon emitters by contributing ~27.5% to the global figure that\nyear. What\u2019s worse, CO2 emissions related to energy are expected to increase to\n43 billion metric tons in 2050 worldwide.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Stand\"><span class=\"ez-toc-section\" id=\"Where-does-India-stand\"><\/span><strong>Where does India stand?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The impact of FDI on the country\u2019s\nCO2 emission has been significant. To be precise, India was the 3<sup>rd<\/sup> largest carbon\nemitter after China and the US in 2018.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"FDI\"><span class=\"ez-toc-section\" id=\"FDI-meaning\"><\/span><strong>FDI meaning<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The inflow of funds from an international entity into a domestic entity,\nwith an intention to acquire lasting interest, is called FDI or foreign direct investment. As per the\nOrganisation for Economic Co-operation and Development (OECD), lasting interest\nmeans when an international business acquires at least 10% of the voting rights\nin a domestic organisation.<\/p>\n\n\n\n<p>But FDI is not just restricted to\nthe international movement of capital, it can also take the form of\ncomplementary elements such as processes, skills, management, and technology.\nIn exchange for the lasting interest that an FDI offers a foreign entity, a\ndomestic company can unlock several benefits as discussed below.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Advantages\"><span class=\"ez-toc-section\" id=\"Advantages-of-FDI-for-a-domestic-company\"><\/span><strong>Advantages of FDI<\/strong><strong> for a domestic\ncompany<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>FDI is known to fuel economic development by\nboosting the recipient sector of the economy and creating jobs, for both\nskilled and unskilled labour. This, in turn, translates into an increased\nincome of citizens and enhances their buying power, which again, goes on to\nboost the national consumption and economic activities in the nation.<\/p>\n\n\n\n<p>Foreign direct investment also gives the\ndomestic company access to the latest technology and improved processes,\ntogether which help the entity to achieve greater effectiveness and economies\nof scale.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages-of-FDI-for-a-foreign-company\"><\/span><strong>Advantages of FDI<\/strong><strong> for a foreign\ncompany<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>For the investing company, FDI is a means to reduce its cost of production,\naccess cheaper resources and labour, and enjoy attractive tax benefits and\nsubsidies offered by the recipient country.<\/p>\n\n\n\n<p>Still, FDIs can pose certain challenges to both the host and foreign\ncountry, one of which relates to the impact on the environment.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Connect\"><span class=\"ez-toc-section\" id=\"How-do-foreign-direct-investment-and-environment-connect\"><\/span><strong>How do foreign direct investment\nand environment connect?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Thanks to globalisation and liberalisation, over the years, emerging\neconomies have seen a significant rise in FDIs flowing from developed\ncountries. Incentives such as tax deductions and subsidies offered by emerging\neconomies have also supported the traction of FDIs. Challenges persist\nnevertheless.<\/p>\n\n\n\n<p>Due to the scarcity of exhaustive resources such as coal, global\ncompanies look to <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in a domestic entity associated with the extraction of\nsuch minerals. More funds in the sector mean increased economic activities\ncoupled with the emission of carbon and other harmful gas. Moreover, with\ngrowing concerns of global warming and climate change, economies across the globe have\nbeen putting out strict fiscal and environmental measures in place so\nbusinesses can operate without impacting the environment significantly.\nImplementing a carbon tax is one such fiscal measure.<\/p>\n\n\n\n<p>While these policies favour environmental-friendly operations, they can\nend up discouraging foreign companies from investing in the domestic country\nthus depriving it the benefits of a foreign\ndirect investment. Ergo, host countries offer fiscal incentives such as\nsubsidies to attract FDIs. In other cases, both the countries end up\ncompromising on certain terms to arrive at a common ground. What happens in the\nend is not surprising\u2014the environment suffers. But this is not the only area of\nconcern.<\/p>\n\n\n\n<p>Natural disasters don\u2019t impact the host country alone.\nThey can cause serious damage to the investing company as well. In the face of\na natural disaster and large-scale destruction of infrastructure that follows,\nthe survival of the foreign company is crucial to the host country\u2019s economic\nhealth. If capital is lost, investing companies can seek assistance from parent\ncompanies at home and recover quickly. This, in turn, would contribute to the\nrecovery of the host country as well.<\/p>\n\n\n\n<p>However, capital-rich companies are not free from issues either. Natural disasters can disrupt vertical and\nhorizontal linkages between the investing and the recipient companies by\nhurting local suppliers\u2019 production. This can tempt foreign companies to uproot\ntheir funds from the domestic company and move elsewhere.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Way\"><span class=\"ez-toc-section\" id=\"What-is-the-way-forward\"><\/span><strong>What is the way forward?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>One of the most conducive ways to move ahead is to promote sustainable\ninnovations. These would enable policymakers in framing regulations that are feasible\nfor both economy and environment, and as a result, attract eco-friendly foreign direct investments. Second, countries\ncan consider swapping traditional sources of energy with renewable resources.<\/p>\n\n\n\n<h3 class=\"Conclusion wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><strong>Conclusion<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>With natural disasters (whether\ncaused by humans or otherwise), climate change,\nand global warming on the rise, it is\nquintessential for countries to be sensitive to environmental wellbeing while\nalso achieving economic development. There is just no single way.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Despite offering various benefits, FDI has downsides to it. For instance, more funds in the extraction industry means higher carbon emission. But with no such activities, the host company loses a chance at development<\/p>\n","protected":false},"author":27,"featured_media":1495,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[10,1744],"tags":[],"acf":[],"modified_by":"Manonmayi","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/07\/FDI.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1469"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/27"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=1469"}],"version-history":[{"count":3,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1469\/revisions"}],"predecessor-version":[{"id":1473,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1469\/revisions\/1473"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/1495"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=1469"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=1469"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=1469"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}