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Indian government policytowards with the foreign

capital

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What is FDI and FII Both FDI and FII is related toinvestment in a foreign country. FDI or Foreign Direct

Investment is an investment that a parent company makes

in a foreign country. On the contrary, FII or ForeignInstitutional Investor is an investment made by an investor

in the markets of a foreign nation.In FII, the companies only need to get registered in the

stock exchange to make investments. But FDI is quitedifferent from it as they invest in a foreign nation.The Foreign Institutional Investor is also known as hot

money as the investors have the liberty to sell it and take itback. But in Foreign Direct Investment, this is not possible.

In simple words, FII can enter the stock market easily andalso withdraw from it easily. But FDI cannot enter and exitthat easily. This difference is what makes nations to choose

FDIs more than then FIIs.

FDI is more preferred to the FII as they are considered tobe the most beneficial kind of foreign investment for the

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'Global Depositary Receipt - GDR'1. A bank certificate issued in more than onecountry for shares in a foreign company. The

shares are held by a foreign branch of aninternational bank. The shares trade as domesticshares, but are offered for sale globally throughthe various bank branches.

American Depositary Receipt - ADR'A negotiable certificate issued by a U.S. bankrepresenting a specified number of shares (or

one share) in a foreign stock that is traded on aU.S. exchange. ADRs are denominated in U.S.dollars, with the underlying security held by aU.S. financial institution overseas.

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Announced regarding FDI in the post1991

Investment in high technology in high industries-100%

Foreign equity holding in service -51% Business in e-commerence , oil refining-100% Telecom sector -100%(ISPs,email,voicemail) Cellular telecom services -74%,previous -49% Insurance sector-26% Airport-100%, above 74% prior approval by govt. Courier services -100% Regional urban infrasture development, tea plantation

-100%, Hotel & truism sector-100% Defence industries -26% Petroleum sector-100% Printing & scientific and technical magazines, journal-

100% Banking sector-74%

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FII

January andOctober, 2007,FIIs allowed to invest US $ 3.2 billion in government securities

June, 2008 While reviewing the External Commercial Borrowingpolicy, the government increased thecumulative debt investment limits from US $ 3.2 billion to US $ 5billion

October 2008 While reviewing the External Commercial Borrowingpolicy, the government increased thecumulative debt investment limits from US $ 3 billion to US $ 6billion

October 2008 Removal of regulation for FIIs pertaining to the

restriction of a 70:30 ratio of investment ine uit and debt, res ectivel .

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March 2009Disapproval of FIIs lending shares abroad.E-bids platform for FIIs.

August 2009 FIIs allowed to participate in interest ratefutures.April 2010 FIIs allowed to offer domestic governmentsecurities and foreign sovereign securities with

AAA rating as collateral (in addition to cash) torecognized stock exchanges in India for theirtransactions in the cash segment of the market.November 2010 Investment cap for FIIs increased by US $5 billion each in government securities and corporate

bonds to US $ 10 billion and US $ 20 billion, respectively.

March 2011 The limit of US $ 5 billion in corporate bondsissued by companies in the infrastructure sectorwith a residual maturity of over fi ve years increased by

an additional limit of US $ 20 billion,

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Policy Developments

a) Increased investment limit for FIIs in government and corporate

debt: In an attempt to enhance FII investment indebt securities, the government has increased the current limit ofFll investment in government securities by US $ 5 billion

b) The time period for the utilization of the debt limits:

c) Government debt long terms: The SEBI, vide its circular datedFebruary 2009, had decided that no single entityshall be allocated more than ` 10,000 crore of the investmentlimit.

d)Corporate debt (Old limit): The SEBI has decided that no singleentity shall be allocated more than ` 600 crore of the investmentlimit.

f) FII investment into debt securities that are to be listed: The

market regulator has decided that FIIs will be allowedto invest in primary debt issues only if the listing is committed to