Foreign Institutional Investment (FII) and FDI (Foreign Direct Investment), both, are important forms of foreign investment in a host country. However, there are several key differences between the two:

• Nature of investment: FII refers to investment by an institution established or incorporated outside a country, which invests in share market, hedge funds, pension funds, mutual funds etc. in another country. On the other hand, FDI refers to investment in the form of controlling ownership by a foreign company in an already existing company of another country or by setting up a subsidiary. As per SEBI guidelines, a threshold of 10% of equity ownership is required to qualify as a ‘foreign direct investor’.
• Role played: FDI targets a specific enterprise and aims to increase the enterprises’ capacity and productivity or change its management control. Thus, capital inflow is translated into additional production. FII helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise.
• Stability: FDI is considered to be more stable than Fll, as it is a long-term and productive investment. FII is referred to as ‘hot money’ due to the short term nature of investment. It is also speculative, volatile and involves higher risk of capital flight.
• Ease of entry and exit: FIl can easily enter and withdraw as they mostly invest in the secondary market. However, FDI cannot enter and exit easily due to the nature of investment. Further, the investment flows from FDIs are mostly in primary markets.

Role of FDI in the economic development of India:

• FDI is a non-debt financial resource, which helps to meet the capital requirements of a country for economic growth and capital formation. It also stimulates domestic investment and human capital formation in the country.
• FDI allows bridging of the technology gap between foreign and domestic firms to boost the scale of production which is beneficial for the betterment Indian economy.
• FDI increases employment opportunities in India, which is critical for utilizing our demographic dividend.
• FDI contributes to integration into the global economy by boosting foreign trade flows through their broad international marketing network. They also promote export oriented activities that improve the export performance of the country.
• FDI is a major source of foreign exchange inflow in the country which allows the government to generate adequate resources which help to stabilize the Balance of Payment.
• FDI has the potential to bring social and environmental benefits to India through the dissemination of good practices and technologies within multinational enterprises, and through their subsequent spillovers to domestic enterprises.

To attract FDI in India, the government has increasingly liberalized its FDI regime in various sectors including finance, defence, insurance etc. FDI inflow has seen growth in the last decades owing to these reforms. However, more reforms on subjects like land and labour as well as policy stability in terms of taxation etc.is required to make the economy more attractive for FDIS.