16.foreign investment

8/2/2019 16.Foreign Investment

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FOREIGN INVESTMENT

BY

KETANMANJEET


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MEANING:

Flows of capital from one nation to anotherin exchange for significant ownership stakes in domesticcompanies or other domestic assets.

A source of capital and investment involving foreigncontrol of production

A channel of technology transfer and industrial

development.


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Foreign Direct Investment in India

00.5

1

1.5

2

2.53

3.5

4

4.5

5

$Billions

1990 1992 1994 1996 1997 1998 1999 2000 2001 2002

Year


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Indias Development Strategy:

1947 Indias independence.

1956 second Five-Year Plan focuses ongovernment led industrializationstrict

foreign exchange and import controls enacted. 1969 all domestically owned banks

nationalized.

1972 all insurance companies nationalized.

1973 all foreign investment placed undergovernmental control; limited foreign holdingsto under 40%.


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TYPES .

FDI

PORTFOLIO INVESTMENT.

FDI refers to investment in a foreign country where theinvestors retain control over the investment. It takes the

form of starting a subsidiary or starting a joint venture in the

foreign country.

If the investor has only a sort of property interest in investing

the capital in buying equities , bonds or other securities

abroad, it is referred to the portfolio investment.


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FDIs are governed by long term considerations

because these investments cannot be easily

liquidated.

Long term political stabilities government policy industrial and economics prospect

Whereas portfolio investment can be easily liquidified easily are

influenced by short run gains.


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SoFOREIGN INVESTMENT

JOINT

VENT

INVEST

MENTBY FIIS

INVEST

BY FDR,

FCCB

ACQUISTION

WHOLLY

OWNED

SUBSIDA

RY


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Some other direct benefits are.

Domestic labor.Consumers

Government


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DL:- may get higher real wages because of theincrease in productivity and may expansion ofthe employment opportunities.

Consumers:- if FI is cost reducing in particularindustry consumers of the product may gainthrough lower product prices. If theinvestment or product improving consumersbenefit from better quality product or newproduct.


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ITEMS 1986-90 1991-95 1996-2000 2001 2004

GDP(in

current

prices)

10.8 5.6 1.3 -0.8 12.0

Exports of

goods and

services

15.6 5.4 3.4 -3.3 20.1

FDI inflows 23.1 21.1 40.2 -40.9 2.5

Gross fixed

capital

formation.

13.4 4.2 1.0 -3.9 12.9

ANNUAL GROWTH RATE OF GDP FDI EXPORTS AND CAPITAL FORMATION


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WHAT WAS THE CRITERIA

FOR FDI

Some time in 1991-92, the then Finance Ministerand present Prime Minister Dr. Manmohan Singhreferred to certain criteria for allowing ForeignDirect Investment. These were :

1. Establishment of basic industries requiring hugecapital and advanced sophisticated technology.

2. Infrastructure projects like electricity generationroad building etc.

3. Projects which would generate employment


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WHAT SHOULD GOVT. DO

Govt. should identify the weakness of present retail trade.

Govt. should specify the areas where customers are not being

served properly.

Govt. should specify what it expects from retail trade that is not

being met presently.

Govt. should publicize the sector / persons who have demanded

FDI in Retail Trade.

Govt. should come out with white paper on FDI in Retail Trade

specifying the picture after 25 years and 50 years.


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FOREIGN INVESTMENT IN INDIA

The flow of direct foreign investment to India has been comparativelylimited because of the type of industrial development strategy and verycaution foreign investment policy followed by nation.

Direct foreign investment (private) in India was adversely affected by thefollowing factors..

1. public sector was assigned a monoploy in the most important industriesand there is scope of private investment both domestic and foreign waslimited.

2. Government policy towards foreign capital was very selective. it is onlypermitted in high technology industries in priority areas and in exportoriented industries.

3. Corporate taxation was high and tax laws and procedures was complex.

4. Factors either limited the scope of or discouraged the foreign investmentin India.


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FACTORS AFFECTING

RATE OF INTEREST

SPECULATION

PROFITABILITY COST OF PRODUCTION

ECONOMICS CONDITION

GOVERNMENT POLICIES. POLITICAL FACTORS.


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SUMMARY

Foreign capital now contribute a significance

share of the domestic investment,

employment generation , industrial

production and exports in a number ofeconomics, including china.

Broadly, FI are of two types:-

FDI and portfolio investment.


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And there is an three economic motives of fdi:-

Resources seeking

Market seeking

Efficiency seeking.

The presence of these determinants alone need not onlyattract FDI , other factors are

Political environmentGovernment policies

Social climate

Infrastructural facilities etc. Are imp determinants of FDI


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Thanks

16.foreign investment

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