Q.(a) Explain the relationship between Foreign Direct Investment and economic development.

(a) FDI supports development by supplying capital, technology, skills, employment and market access. (b) SAARC is a South Asian regional cooperation body (1985); BRICS is a bloc of five large emerging economies.

(a) FDI and Economic Development:

Foreign Direct Investment (FDI) is investment by a foreign company or individual in the productive assets of another country (setting up factories, buying a lasting stake in firms). It contributes to development in several ways:

1. Supply of capital: FDI fills the savings-investment gap of developing countries, adding to scarce domestic capital.
2. Transfer of technology: It brings modern technology, know-how and better production methods.
3. Managerial and technical skills: It introduces improved management, marketing and organisational practices.
4. Employment generation: New enterprises create direct and indirect employment.
5. Increase in output and exports: It raises production, improves quality and helps access global markets, boosting exports and foreign exchange.
6. Infrastructure and competition: It strengthens infrastructure and increases competition and efficiency in domestic industry.

However, excessive or unregulated FDI can lead to profit repatriation, dependence and neglect of national priorities, so it must be suitably regulated.

(b) Notes on SAARC and BRICS:

(i) SAARC: The South Asian Association for Regional Cooperation was established in 1985 with its secretariat at Kathmandu (Nepal). Its members are India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, the Maldives and Afghanistan. Its aims are to promote the welfare and quality of life of the people of South Asia, accelerate economic growth and social progress through mutual cooperation in areas such as trade, agriculture, education and technology. SAFTA (South Asian Free Trade Area) was created under it to promote free trade in the region.

…