Foreign Direct Investment In India

Benu Sehgal

IntroductionClassification of FDIRegulatory Authorities India Policy FrameworkGlobal ComparisonBenefits of FDIProblems with FDI

Content

Foreign Direct Investment (FDI) refers to: Cross border investment made by a resident

in one economy (the direct Investor) with an objective of lasting interest in an enterprise (the direct investment enterprise) that is the Resident in the country other than that of the direct investor.

Introduction

Types of FDI

BY DIRECTIO

NBY TARGET BY MOTIVE

INWARD GREENFIELD INVESTMENT

HORIZONTAL FDI

VERTICAL FDI

RESOURCE SEEKING

MARKET SEEKING

EFFICIENCY SEEKING

OUTWARD

Domestic capital is inadequate for purpose of economic growth.

During the period in which the capital market is in the process of development, foreign capital is essential as a temporary measure.

Foreign capital brings with it other scarce productive factors; technical know how, business experience and knowledge.

NEEDS FOR FOREIGN CAPITAL :

Foreign Investment Promotion Board (FIPB) Expedite Clearance process. Periodically review implementation of cleared proposals. Review general and sectoral policy guidelines. Undertake investment promotion activities.

Secretariat for Industrial Assistance (SIA) Acts as gateway to industrial investment in India. Assist entrepreneurs & investors in setting up projects. Liaise with Govt. bodies to seek necessary clearance.

Authorities dealing with Foreign Investment.

Foreign Investment Implementation Authority. (FIIA)

Quick implementation of FDI approvals. Resolution of operational difficulties faced by foreign investors. Gather feedback from foreign investors.

Other authorities involved : Investment commission. Project Approval Board. Reserve Bank of India.

Authorities dealing with Foreign Investment.

APPROVAL ROUTES

AUTOMATIC ROUTES

Under Delegated powers by RBI

FDI under 100% for new & exciting Companies, JVs Firm is permitted Under Automatic routes for all items Except For those for approval fromSEBI Or FBI

Approval from FIPB

Under Foreign Investment Promotion Board

Required for the project that do not qualify for automatic approval route

A proposal to be made to FIPB, which studies the project & coveys its decision within 30 days of submitting application

Preference is given to projects in high priority industries.

Approval Routes For Foreign Investment

Foreign Investment is allowed in all areaexcept following sectors where foreigninvestment is prohibited :

Atomic energy Agriculture (except floriculture, horticulture, seed

development etc.) Lottery business / Gambling and betting. Plantations (except tea plantation)

Government Policy

Investments through GDRs and ADRs. Mobilization of funds through preference

shares. Mobilization of funds through external

commercial borrowings. Foreign currency exchangeable bonds.

Mobilization of Funds-Different options for Indian Corporates.

FDI Equity Inflow By Countries.

Sectoral Distribution Of FDI

FDI Equity Inflow By Sectors

FDI Inflow Financial Year - Wise

FDI Inflow – Financial Year - Wise

Local Market Demand – 86%Low cost operations – 29%Ease of making FDI – 29%Labour Availability – 29%Entry of other players – 24%Political Stability – 24%Time zone advantage – 14%

Primary Reasons For FDI Investments In India.

Top Five Drivers And The Concerns

Global Comparisons

Global Comparisons

o Play a complementary role in overall capital formation.

o Employment generation and productivity enhancement.

o Encourages the transfer of management skills, intellectual property, and technology.

o Improves forex position of the country.o Promotion of the competition within the local

input market.o Development of the human capital resources.o Increase in exports.o Increases tax revenues.

Benefits of FDI

• A company may lose out on its ownership to as overseas company.

• Government has less control over the functioning of the company that is functioning as the wholly owned subsidiary of an overseas company.

• FDI entering and taking the control of already established market, where local companies are meeting the requirements of the market.

• Invest in machinery and intellectual property, not in wages.

• Large giants can set up monopolies in highly profitable sector.

Problems with FDI

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