FDI in IndiaInternational Business

Prepared By Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.Phone – 9744551114

Mail – manu_melwinjoy@yahoo.com

Kindly restrict the use of slides for personal purpose. Please seek permission to reproduce the same in public forms and presentations.

Why India is the favourite destination for Investment?

• World's largest democracy with 1.2 billion people.

• Stable political environment and responsive administrative set up.

• Well established judiciary to enforce rule of law.

• Land of abundant natural resources and diverse climatic conditions.

• Rapid economic growth: GDP to grow by 8.5% in 2010-11* and 9.0% in 2011-12.

• India's growth will start to outpace China’s within three to five years and hence will become the fastest large economy with 9-10% growth over the next 20-25 years.

Why India is the favourite destination for Investment?

• Investor friendly policies and incentive based schemes.

• Healthy macro-economic fundamentals-Investment rate is expected to be 37% in 2010-11 and 38.4% in 2011-12 while Domestic Savings rate is expected to be 34% in 2010-11 and 36% in 2011-12.

• Cost competitiveness - low labour costs and total labour force of nearly 530 million.

Why India is the favourite destination for Investment?

• Large pool of skilled manpower - strong knowledge base with significant English speaking population.

• Young country with a median age of 30 years by 2025: India's economy will benefit from this "demographic dividend".

• The proportion of population in the working age group (15-59 years) is likely to increase from approximately 58% in 2001 to more than 64% by 2021.

• Huge untapped market potential.

Why India is the favourite destination for Investment?

• The urban population of India will double from the 2001 census figure of 290m to approximately 590m by 2030 (McKinsey).

• Progressive simplification and rationalization of direct and indirect tax structures.

• Reduction in import tariffs. • Full current account

convertibility. • Compliance with WTO norms. • Robust banking and financial

institutions.

Foreign Investment in India

• India has been ranked at the second place in global foreign direct investments in 2010 and will continue to remain among the top five attractive destinations for international investors during 2010-12 period, according to United Nations Conference on Trade and Development (UNCTAD) in a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2012'.

Foreign Investment in India

• A report released in February 2010 by Leeds University Business School, commissioned by UK Trade & Investment (UKTI), ranks India among the top three countries where British companies can do better business during 2012-14.

Foreign Investment in India

• India attracted FDI equity inflows of US$ 2,014 million in December 2010. The cumulative amount of FDI equity inflows from April 2000 to December 2010 stood at US$ 186.79 billion, according to the data released by the Department of Industrial Policy and Promotion (DIPP).

What are the forms in which business can be conducted by a foreign company in India?

• A foreign company planning to set up business operations in India may:– Incorporate a company under the Companies Act,

1956, as a Joint Venture or a Wholly Owned Subsidiary.

– Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.

What is the procedure for receiving Foreign Direct Investment in an Indian company?

• An Indian company may receive Foreign Direct Investment under the two routes as given under:– Automatic Route -FDI is allowed

under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.

What is the procedure for receiving Foreign Direct Investment in an Indian company?

• Government Route - FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.

What are the instruments for receiving Foreign Direct Investment in an Indian company?

• Foreign investment is reckoned as FDI only if the investment is made in equity shares, fully and mandatorily convertible preference shares and fully and mandatorily convertible debentures with the pricing being decided upfront as a figure or based on the formula that is decided upfront.

Which are the sectors where FDI is not allowed in India, both under the Automatic Route as well as under the Government Route?

• FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:– Atomic Energy– Lottery Business– Gambling and Betting– Business of Chit Fund– Nidhi Company– Agricultural– Housing and Real Estate business

• http://www.rbi.org.in/scripts/FAQView.aspx?Id=26