Countries like India could face a balance of payments issue with incessant foreign direct investments. In business finance, an unfavorable balance of payments situation is when a country’s external debt exceeds its income. Profitability is not an option for India, since it has to repay its debt, and also post an operating profit. Going on break-even mode for long, holds no value for any overseas business finance investments.
Balance of payments problems might surface directly or indirectly. When there is a large pool of foreign equity presence in Indian companies, then the balance of payment problem is direct. Also, if revenues after exports are not great, then the country has a negative business finance condition. Sometimes, emerging countries like India will buy international export licenses. Costing a lot, these licenses have to be renewed periodically and are subject to lots of terms and conditions. In situations where the basic raw materials are not available within the country, import has to take place. When all this gets out of hand, the business finance potential tilts in the other direction. A direct balance of payments deficit is indicated in these circumstances. Indirect balance of payments happen, when exports from emerging economies are not wanted, because a substitute was found for it in the importing country.
Nowadays, multinational companies invest in other countries by setting up subsidiaries, or branches. By doing this they are ensuring that they deal with the same products and services. What they also achieve is a reduction in operating business finance expenses. Looking at an export perspective, this does not offer a great business finance impetus to the host country. If the FDI is driven by reduction of operating costs, then more exports do not necessarily mean more money for the host country. If the FDI is driven by the reduction of production costs, then more exports will automatically take place from the host country.
Empirical evidences do not however substantiate the direct involvement of FDI in creating unfavorable business finance conditions in a country. However, over a long-term, self-sufficiency to a certain degree is always advised.