Disadvantages

The recently discussed benefits of Foreign Direct Investments to both the host and home economies are definitely true, but there exist some contentious issues to be brought forward to an investors psyche, which can be summarized as follows-

• FDI is irreversible and hence entails the risk of creating under – utilized capacity in case the market turns out to be small.
• The chances of a company loosing out on its ownership to an overseas company are also not completely ruled which in itself is a major drawback.
• Consistent instability in a geographical region; be it political or economic are also not ruled out and hence pose a threat to the profitability of the investor.

• Deterioration of the balance of payments as profits is often offset by incoming FDI and presents a false picture of economic stability.
• The economically backward section of the host country is always inconvenienced when the stream of foreign direct investment is negatively affected.
• Harmful environmental impact of FDI is there especially in case of extractive and heavy industries.
• Social disruptions of accelerated commercialization in less developed economies, is also an issue which the governance faces.
• Issues related to national secrets are also to be kept in mind when allowing Foreign Direct Investments in areas such as defense of a country.
• Effect on competition in national markets is one of the direct spillovers of Foreign Direct Investments which could rise up the technological prowess of the host country if implemented wisely.