project onforeign direct investment
TRANSCRIPT
-
8/8/2019 Project Onforeign Direct Investment
1/20
PROJECT
ON
FOREIN DIRECT INVESTMENT
SUBMITTED TO
SAKET COLLEGE OF MANAGEMENT
SAKET VIDYANAGRI MARG,
CHINCHPADA RD., KATEMANIVALI
KALYAN (EAST)
GUIDED BY PREPARED BY
PROF. SWANAND D. SAPNA NALAVADE
POONAM MANDHARE
VIVEKANAND THOKAL
YOGESH DUBEY
AMIT VARMA
-
8/8/2019 Project Onforeign Direct Investment
2/20
About FDI
Enhanced international response and powerful sectoral productivity ratios
in India are incessantly drawing the attention of the global investors in
India. Other aspects being characterized to the resumption in foreign direct
investment (FDI) recently entail growing client assurance in the market.
Investment in production in one country by firms based abroad. FDI forms
a major part of investment in most industrial and some developing
countries. Some FDI is intended to utilize local natural resources.
Sometimes it is to employ relatively cheap labour, and sometimes to
produce goods near to markets, particularly if trade barriers hinder exports.
FDI may involve additions to a country's capital, but is sometimes locallyfinanced, so that what is imported is techniques and management skills.
FDI is often criticized in both home and host countries. In home countries
trades unions criticize FDI as exporting jobs; in host countries there are
complaints that it is hard for local firms to compete with the know-how
and financial resources of multinational companies. In both home and host
countries the point is made that their multinational location improves the
bargaining power of businesses in dealing with both government and
trades unions.
-
8/8/2019 Project Onforeign Direct Investment
3/20
What is FDI
Foreign direct investment (FDI) occurs when an investor based in one
country (the home country) acquires an asset in another country ( the host
country).
OR
FDI or Foreign Direct Investment is any form of investment that earns
interest in enterprises which function outside of the domestic territory of
the investor.
FDIs require a business relationship between a parent company and its
foreign subsidiary. Foreign direct business relationships give rise to
multinational corporations. For an investment to be regarded as an FDI,
the parent firm needs to have at least 10% of the ordinary shares of its
foreign affiliates. The investing firm may also qualify for an FDI if it owns
voting power in a business enterprise operating in a foreign country.
-
8/8/2019 Project Onforeign Direct Investment
4/20
Investment in India - Investing in India - Venturing
into the Indian Market
Investment in Indian market
India, among the European investors, is believed to be a good investment
despite political uncertainty, bureaucratic hassles, shortages of power and
infrastructural deficiencies. India presents a vast potential for overseas
investment and is actively encouraging the entrance of foreign players into
the market. No company, of any size, aspiring to be a global player can,
for long ignore this country which is expected to become one of the top
three emerging economies.
Success in India
Success in India will depend on the correct estimation of the country's
potential, underestimation of its complexity or overestimation of its
possibilities can lead to failure. While calculating, due consideration
should be given to the factor of the inherent difficulties and uncertainties
of functioning in the Indian system.Entering India's marketplace requires a
well-designed plan backed by serious thought and careful research. For
those who take the time and look to India as an opportunity for long-term
growth, not short-term profit- the trip will be well worth the effort.
Market potential
India is the fifth largest economy in the world (ranking above France,
Italy, the United Kingdom, and Russia) and has the third largest GDP in
the entire continent of Asia. It is also the second largest among emerging
nations. (These indicators are based on purchasing power parity.) India is
-
8/8/2019 Project Onforeign Direct Investment
5/20
also one of the few markets in the world which offers high prospects for
growth and earning potential in practically all areas of business.Yet,
despite the practically unlimited possibilities in India for overseas
businesses, the world's most populous democracy has, until fairly recently,
failed to get the kind of enthusiastic attention generated by other emerging
economies such as China.
Lack of enthusiasm among investors
The reason being, after independence from Britain 50 years ago, India
developed a highly protected, semi-socialist autarkic economy. Structural
and bureaucratic impediments were vigorously fostered, along with a
distrust of foreign business. Even as today the climate in India has seen a
seachange, smashing barriers and actively seeking foreign investment,
many companies still see it as a difficult market. India is rightfully quoted
to be an incomparable country and is both frustrating and challenging at
the same time. Foreign investors should be prepared to take India as it is
with all of its difficulties, contradictions and challenges.
Developing a basic understanding or potential of the Indian market,
envisaging and developing a Market Entry Strategy and implementing
these strategies when actually entering the market are three basic steps
to make a successful entry into India.
Developing a basic understanding or potential of the Indian market
The Indian middle class is large and growing; wages are low; many
workers are well educated and speak English; investors are optimistic and
-
8/8/2019 Project Onforeign Direct Investment
6/20
local stocks are up; despite political turmoil, the country presses on with
economic reforms.But there is still cause for worries-
Infrastructural hassles.
The rapid economic growth of the last few years has put heavy stress on
India's infrastructural facilities. The projections of further expansion in key
areas could snap the already strained lines of transportation unless massive
programs of expansion and modernization are put in place. Problems
include power demand shortfall, port traffic capacity mismatch, poor road
conditions (only half of the country's roads are surfaced), low telephone
penetration (1.4% of population).
Indian Bureaucracy.
Although the Indian government is well aware of the need for reform and
is pushing ahead in this area, business still has to deal with an inefficient
and sometimes still slow-moving bureaucracy.
Diverse Market .
The Indian market is widely diverse. The country has 17 official
languages, 6 major religions, and ethnic diversity as wide as all of Europe.
Thus, tastes and preferences differ greatly among sections of consumers.
Therefore, it is advisable to develop a good understanding of the Indian
market and overall economy before taking the plunge. Research firms in
India can provide the information to determine how, when and where to
enter the market. There are also companies which can guide the foreign
firm through the entry process from beginning to end --performing the
requisite research, assisting with configuration of the project, helping
-
8/8/2019 Project Onforeign Direct Investment
7/20
develop Indian partners and financing, finding the land or ready premises,
and pushing through the paperwork required.
Developing up-front takes:
Market Study
Is there a need for the products/services/technology? What is the probable
market for the product/service? Where is the market located? Which mix
of products and services will find the most acceptability and be the most
likely to generate sales? What distribution and sales channels are
available? What costs will be involved? Who is the competi
Check on Economic Policies
The general economic direction in India is toward liberalization and
globalization. But the process is slow. Before jumping into the market, it is
necessary to discover whether government policies exist relating to the
particular area of business and if there are political concerns which should
be taken into account.
-
8/8/2019 Project Onforeign Direct Investment
8/20
Foreign Direct Investment (FDI) is permited as
under the following forms of investments.
y Through financial collaborations.y Through joint ventures and technical collaborations.y Through capital markets via Euro issues.y Through private placements or preferential allotments.
Forbidden Territories:
FDI is not permitted in the following industrial sectors:
y Arms and ammunition.y Atomic Energy.y Railway Transport.y Gambling & Bettingy Agriculture & Plantation (other than Tea plantation)y Coal and lignite.y Housing & Real Estatey Mining of iron, manganese, chrome, gypsum, sulphur, gold,
diamonds, copper, zinc.
Foreign Investment through GDRs (Euro Issues)
Foreign Investment through GDRs is treated as Foreign Direct
Investment
Indian companies are allowed to raise equity capital in the international
market through the issue of Global Depository Receipt (GDRs). GDRs are
designated in dollars and are not subject to any ceilings on investment. An
applicant company seeking Government's approval in this regard should
-
8/8/2019 Project Onforeign Direct Investment
9/20
have consistent track record for good performance (financial or otherwise)
for a minimum period of 3 years. This condition would be relaxed for
infrastructure projects such as power generation, telecommunication,
petroleum exploration and refining, ports, airports and roads.
Clearance from FIPB
There is no restriction on the number of Euro-issue to be floated by a
company or a group of companies in the financial year . A company
engaged in the manufacture of items covered under Annex-III of the New
Industrial Policy whose direct foreign investment after a proposed Euro
issue is likely to exceed 51% or which is implementing a project not
contained in Annex-III, would need to obtain prior FIPB clearance before
seeking final approval from Ministry of Finance.
Use of GDRs
The proceeds of the GDRs can be used for financing capital goods
imports, capital expenditure including domestic purchase/installation of
plant, equipment and building and investment in software development,
prepayment or scheduled repayment of earlier external borrowings, and
equity investment in JV/WOSs in India.
Restrictions
However, investment in stock markets and real estate will not be
permitted. Companies may retain the proceeds abroad or may remit funds
into India in anticiption of the use of funds for approved end uses. Any
investment from a foreign firm into India requires the prior approval of the
Government of India.
-
8/8/2019 Project Onforeign Direct Investment
10/20
Investment in India - Foreign Direct Investment - Approval
Foreign direct investments in India are approved through two routes:
Automatic approval by RBI:
The Reserve Bank of India accords automatic approval within a period of
two weeks (provided certain parameters are met) to all proposals
involving:
y foreign equity up to 50% in 3 categories relating to mining activities(List 2).
y foreign equity up to 51% in 48 specified industries (List 3).y foreign equity up to 74% in 9 categories (List 4).y where List 4 includes items also listed in List 3, 74% participation
shall apply.
The lists are comprehensive and cover most industries of interest to
foreign companies. Investments in high-priority industries or for trading
companies primarily engaged in exporting are given almost automatic
approval by the RBI.
Opening an office in India
Opening an office in India for the aforesaid incorporates assessing the
commercial opportunity for self, planning business, obtaining legal,
financial, official, environmental, and tax advice as needed, choosing legal
and capital structure, selecting a location, obtaining personnel, developing
a product marketing strategy and more.
-
8/8/2019 Project Onforeign Direct Investment
11/20
The FIPB Route:
Processing of non-automatic approval cases
FIPB stands for Foreign Investment Promotion Board which approves all
other cases where the parameters of automatic approval are not met.
Normal processing time is 4 to 6 weeks. Its approach is liberal for all
sectors and all types of proposals, and rejections are few. It is not
necessary for foreign investors to have a local partner, even when the
foreign investor wishes to hold less than the entire equity of the company.
The portion of the equity not proposed to be held by the foreign investor
can be offered to the public.
Setting up of froreign Investment Promotion Board
(FIPB)
The Indian government has set up Foreign Investment Promotion Board
(FIPB). FIPB is the only agency in the country that deals with foreign
direct investments and investments into India.
The main objective of Foreign Investment Promotion Board (FIPB) is to
encourage foreign direct investment into the country by taking up
activities that promote investment. The chairman of Foreign Investment
Promotion Board (FIPB) is the Secretary Industry of the Department of
Industrial Promotion and Policy, government of India.
-
8/8/2019 Project Onforeign Direct Investment
12/20
Functions of Foreign Investment Promotion Board
(FIPB):
y To quickly approve the foreign investment proposals.y To review the foreign direct investment polices and to communicate
with other agencies such as the Administrative Ministries in order to
set up guidelines that are transparent and which encourage FDI into
the various sectors of the country.
y To look over the implementation of the various proposals that have
been approved by it.y To take up such activities that encourage FDI into the country such
as establishing contact with international companies and also
inviting them to invest in India.
y To communicate with government, non- government, and IndustryBodies in order to increase the flow of foreign direct investment into
the country.
y To communicate with the Foreign Investment Promotion Councilthat has been set up in the Industry Ministry.
y To identify the various sectors that require foreign direct investment.y To take up all other activities that help in increasing the flow of
foreign direct investment into the country.
-
8/8/2019 Project Onforeign Direct Investment
13/20
Cabinet Committee Of Foreign Investment (CCFI)
Investment proposals falling outsidethe automatic route and having a
project cost of Rs. t6,000 million or more would require prior approval of
Cabinet Committee of Foreign Investment (CCFI).
.Decision of CCFI usually conveyed in 8-10 weeks. Thereafter, filings
have to be made by the Indian company with the RBI.
Investment proposals falling within the automaticroute and having a
project cost of Rs. 6,000 million or more do not require to be approved by
CCFI.
Total foreign investment and FDI
Total foreign investment in IFY 1997-98 was estimated at dols 4.8 billion
in 1997-98, compared to dols 6 billion in 1996-97. Foreign Direct
Investment (FDI) in 1997-98 was an estimated dols 3.1 billion, up from
dols 2.7 billion in1996-97. The government is likely to double FDI inflows
within two years. Foreign portfolio investment by foreign institutional
investors was significantly lower at dols 752 million for fiscal 1997-98,
down compared to dols 1.9 billion in1996-97, partly reflecting the effect of
the recent crisis in Asia.
Foreign institutional investors
Foreign institutional investors (FIIs) were net sellers from November 1997
through January 1998. The outflow, prompted by the economic and
currency crisis in Asia and some volatility in the Indian rupee, was modest
-
8/8/2019 Project Onforeign Direct Investment
14/20
compared to the roughly dols 9 billion which has been invested in India by
FIIs since 1992.
FII investments
FII net investment declined to dols 1.5 billion for IFY 1997-98, compared
to dols 2.2 billion in 1996-97. The trend reversed itself in February and
March 1998, reflecting the renewed stability of the rupee and relatively
attractive valuations on Indian stock markets.
Large outflows of capital
Large outflows began again in May 1998, following India's nuclear tests
and volatility in the rupee/dollar exchange rate. In an effort to avoid
further heavy outflows, the RBI announced in June that FIIs would be
allowed to hedge their incremental investments in Indian markets after
June11, 1998.
FDI In India Across Different Sectors
Hotel & Tourism
Hotels include restaurants, beach resorts and business ventures providing
accommodation and food facilities to tourist. Tourism would include travel
agencies, tour operators, transport facilities, leisure, entertainment,
amusement, sports and health units.
100 per cent FDI is permitted for this sector through the automatic
route.
-
8/8/2019 Project Onforeign Direct Investment
15/20
Trading
For trading companies 100 per cent FDI is allowed for
y Exportsy Bulk Importsy Cash and Carry wholesale trading.
Power
For business activities in power sector like electricity generation,
transmission and distribution other than atomic plants the FDI allowed is
up to 100 per cent.
Drugs & Pharmaceuticals
For the production of drugs and pharmaceutical a FDI of 100 per cent is
allowed, subject to the fact that the venture does not attract compulsory
licensing, does not involve use of recombinant DNA technology.
Private Banking
FDI of 49 per cent is allowed in the Banking sector through the automatic
route provided the investment adheres to guidelines issued by RBI.
Insurance Sector
For the Insurance sector FDI allowed is 26 per cent through the automatic
route on condition of getting license from Insurance Regulatory and
Development Authority (IRDA).
Telecommunication
y For basic, cellular, value added services and mobile personalcommunications by satellite, FDI is 49 per cent.
-
8/8/2019 Project Onforeign Direct Investment
16/20
y For ISPs with gateways, radio-paging and end to end bandwidth,FDI is allowed up to 74 per cent. But any FDI above 49 per cent
would require government approval.
Business Processing Outsourcing
FDI of 100 per cent is permitted provided such investments satisfy certain
prerequisites.
NRI's And OCB's
They can have direct investment in industry, trade and infrastructure
Up to 100 per cent equity is allowed in the following sectors
y 34 High Priority Industry Groupsy Export Trading Companiesy Hotels and Tourism-related Projectsy Hospitals, Diagnostic Centersy Shippingy Deep Sea Fishingy Oil Explorationy Powery Housing and Real Estate Developmenty Highways, Bridges and Portsy Sick Industrial Unitsy Industries Requiring Compulsory Licensingy Industries Reserved for Small Scale Sector
-
8/8/2019 Project Onforeign Direct Investment
17/20
Sector wise Regulation in Foreign Investment
i) Automatic route for specified activities subject to Sectoral cap and
conditions.
Sectors Cap
Airports
y Existingy Greenfie
74%
100%
Air Transport Services
y Non Resident Indiansy Other
100%
49%
Alcohol distillation and brewing 100%
Banking (Private Sector) 74%
Coal and Lignite mining (specified) 100%
Coffee, Rubber processing and warehousing 100%
Construction and Development (Specified
projects)
100%
Floriculture, Horticulture and Animal Husbandry 100%
Specified Hazardous chemicals 100%
Industrial Explosives Manufacturing 100%
Insurance 26%
Mining (Precious metals, Diamonds and stones) 100%
Non banking finance companies ( conditional) 100%
Petroleum and Natural gas
yRefining (private companies)
y Other areas100%
100%
Power generation, transmission, distribution 100%
Trading
y Wholesale cash and carry100%
100%
-
8/8/2019 Project Onforeign Direct Investment
18/20
y Trading of ExportsSEZs and Free Trade
Warehousing Zones
100%
Telecommunication
y Basic and cellular servicesy ISP with gateways, radio paging, end-end
bandwith (Above 49 % required Govt.
Approval.)
49%
74%
Prior Approval from FIPB where investment is above Sectoral caps
for activities listed below.
Sectors Cap
New Investment by a foreign investor in a field in which the investor
already has an existing joint venture or collaboration with another
Indian partner
New investment sought to be made in manufacture of items reserved
for Small Scale Industries Existing Airports 74% to 100%
Asset reconstruction companies 49%
Atomic Minerals 74%
y Broadcastingo FM Radioo Cable networko Direct-To-Home (DTH)o
Setting up hardware facilitieso Uplinking news and current affairso Uplinking non-news, current affairs
TV channel
20%
49%
49%
49%26%
100%
y Cigarette manufacturing 100 %
-
8/8/2019 Project Onforeign Direct Investment
19/20
y Courier services other than those under theambit of Indian Post Office Act, 1898
100 %
y Defense production 26 %y Investment companies in infrastructure /
service sector (except telecom)49 %
y Petroleum and natural gas refining (PSU) 26 %y Tea Sector including Tea plantation 100 %y Trading items sourced from Small scale
sector
100 %
y Test marketing for equipment for whichcompany has approval for manufacture
100 %
y Single brand retailing 51 %y Satellite establishment and operations 74 %y Print Media
o Newspapers and periodicals dealingwith news and current affairs
o Publishing of scientific magazines /specialty journals periodicals
26 %
100 %
y Telecommunicationo Basic and unified access serviceso ISP with gateways, radio paging, end
to end bandwidth
o ISP with gateway (specified)
49 % to 74 %
49 % to 74 %
49 % to 100 %
-
8/8/2019 Project Onforeign Direct Investment
20/20
Benefits of Foreign Direct Investment-
Attracting foreign direct investment has become an integral part of the economic development strategies
for India. FDI ensures a huge amount of domestic capital, production level, and employment
opportunities in the developing countries, which is a major step towards the economic growth of the
country. FDI has been a booming factor that has bolstered the economic life of India, but on the other
hand it is also being blamed for ousting domestic inflows. FDI is also claimed to have lowered few
regulatory standards in terms of investment patterns. The effects of FDI are by and large
transformative. The incorporation of a range of well-composed and relevant policies will boost up the
profit ratio from Foreign Direct Investment higher. Some of the biggest advantages of FDI enjoyed by
India have been listed as under:
Economic growth- This is one of the major sectors, which is enormously benefited from foreign direct
investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life
of country.
Trade- Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of
goods and services in India both in terms of import and export production. Products of superior quality
are manufactured by various industries in India due to greater amount of FDI inflows in the country.
Employment and skill levels- FDI has also ensured a number of employment opportunities by aiding
the setting up of industrial units in various corners of India.
Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing of
knowledge from India especially in the Information Technology sector. It helps in developing the know-
how process in India in terms of enhancing the technological advancement in India.
Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in the
Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits
gained by the foreign firms through these joint ventures is spent on the Indian market.