Submitted By:Brahmbhatt Ankita (04)Chhabhaya Yogita (05)

Submitted To : ( Group : 2 )Prof . Hiren Patel

FOREIGN DIRECT INVESTMENT

Foreign Direct Investment (FDI) is now recognized as an important driver of growth in the country. Government is , therefore, making all efforts to attract and facilitate FDI and investment from Non Resident (NRIs) including Overseas Corporate Bodies (OCBs), that are predominantly owned by them, to complement and supplement domestic investment

Type of Foreign Direct InvestorsA foreign direct investor may be classified in any sector

of the economy and could be any one of the following:

An in individual; A group of related individuals; An Incorporated or unincorporated entity; A public company or private company; A group of related enterprises; A government body; An estate(law),trust or other societal organization; or Any combination of the above

Methods of Foreign Direct InvestmentsThe foreign direct investor may acquire 10% or more of

the voting power of an enterprise in an economy through any one of the following methods:

By incorporating a wholly owned subsidiary or company

By acquiring shares in an associated enterprise Through a merger or an acquisition of an unrelated

enterprise Participating in an equity joint venture with another

investor or enterprise

Continue…..

Foreign direct investments incentives may take

the following: Low corporate tax and income tax rates Tax holidays Other types of tax concessions Special economic zones Investment financial subsidies Soft loan or loan guarantees Free land or land subsidies Infrastructure subsidies

Policy & Regulations regarding FDIAutomatic Route(a) New Ventures Whenever any investor chooses to make an

application to the FIPB and not to avail of the automatic route, he or she may do so.

 

Existing Companies  Besides new companies, automatic route for

FDI/NRI/OCB investment is also available to the existing companies proposing to induct foreign equity. For existing companies with an expansion programme, the additional requirements are that (i) the increase in equity level must result from the expansion of the equity base of the existing company without the acquisition of existing shares by NRI/OCB/foreign investors, (ii) the money to be remitted should be in foreign currency and (iii) proposed expansion programme should be in the sector(s) under automatic route. Otherwise, the proposal would need Government approval through the FIPB. For this the proposal must be supported by a Board Resolution of the existing Indian company.

Government Approval

(i) All proposals that require an Industrial Licence which includes (1) the item requiring an Industrial Licence under the Industries (Development & Regulation) Act, 1951; (2) foreign investment being more than 24 per cent in the equity capital of units manufacturing items reserved for small scale industries; and (3) all items which require an Industrial Licence in terms of the locational policy notified by Government under the New Industrial Policy of 1991.

Issue and Valuation of Shares in case of existing companies

In case of listed companies, valuation shall be as per the RBI/SEBI guidelines as follows: The issue price shall be either at :

The average of the weekly high and low of the closing prices of the related shares quoted on the Stock Exchange during the six months preceding the relevant date or b) The average of the weekly high and low of the closing prices of the related shares quoted on the Stock Exchange during the two weeks preceding the relevant date.

Foreign Investment in the Small Scale Sector

Under the small scale policy, equity holding by other units including foreign equity in a small scale undertaking is permissible up to 24 per cent. However there is no bar on higher equity holding for foreign investment if the unit is willing to give up its small scale status. In case of foreign investment beyond 24 per cent in a small scale unit which manufactures small scale reserved item(s), an industrial license carrying a mandatory export obligation of 50 per cent would need to be obtained.

FDI Inflows (as per international best practices) 

FISCAL YEAR (APRIL-MARCH)

EQUITYReinveste

d earnings+

Other capital+

Total FDI inflows

YOY growth

(%)

FIPB Route/ RBI's Automatic Route/ Acquisition Route

Equity capital of unincorporated bodies#

       

1991(August)-2000 (March)

15483 - - - 15483 -

2000-01 2339 61 1350 279 4029 -

2001-02 3904 191 1645 390 6130 (+) 52

2002-03 2574 190 1833 438 5035 (-) 18

2003-04 2197 32 1460 633 4322 (-) 14

2004-05 3250 528 1904 369 6051 (+) 40

2005-06 5540 435 2760 226 8961 (+) 48

2006-07 (P)* 15585 896 5828 517 22826 (+) 146

2007-08 (P)* 24575 2292 7168 327 34362 (+) 51

2008-09(April-Dec)

23885 334  3004  203  27426 -

Cumulative Total (From August 1991-January 2009)

99332 4959 26952 3382

APPROVED PROPOSALS (In US$ Million) 

Year

No. of proposals

Amount of approved proposals

  Equity Loan Guarantee Total

2003-04 1214 822.40 229.90 413.83 1466.13

2004-05 1281 2010.03 384.39 409.91 2804.33

2005-06 1395 1887.78 629.74 337.32 2854.84

2006-07 1817 11244.96 1475.28 2339.76 15060.00

Apr.-Dec. 2007 1595 11324.99 1331.77 5780.50 18437.26

Apr.-Dec. 2006 1268 4594.09 1270.70 2079.75 7944.54

SOURCE: Reserve bank of India report, April 2008

 Foreign Investment Policy for Trading Activities

Foreign investment for trading can be approved through the automatic route up to 51% foreign equity, and beyond this by the Government through FIPB. For approval through the automatic route, the requirement would be that it is primarily export activities and the undertaking concerned is an export house/trading house/ super trading house/star trading house registered under the provisions of the Export and Import policy in force.

Other Modes of Foreign Direct Investments Global Depository Receipts(GDR)/American Deposit

Receipts (ADR)/Foreign Currency Convertible Bonds (FCCB): Foreign Investment through GDRs/ADRs, Foreign Currency Convertible Bonds (FCCBs) are treated as Foreign Direct Investment. Indian companies are allowed to raise equity capital in the international market through the issue of GDR/ADRs/FCCBs. These are not subject to any ceilings on investment. An applicant company seeking Government’s approval in this regard should have a consistent track record for good performance (financial or otherwise) for a minimum period of 3 years

Preference Shares Foreign investment through preference shares is

treated as foreign direct investment. Proposals are processed either through the automatic route or FIPB as the case may be. The following guidelines apply to issue of such shares:-

Foreign investment in preference share are considered as part of share capital and fall outside the External Commercial Borrowing (ECB) guidelines

INVESTMENT BY NON RESIDENT INDIANS & OVERSEAS CORPORATE BODIES

For all sectors, excluding those falling under Government approval, NRIs (which also includes PIOs) and OCBs (an overseas corporate body means a company or other entity owned directly or indirectly to the extent of at least 60% by NRIs) are eligible to bring investment through the automatic route of RBI. All other proposals, which do not fulfil any or, all of the criteria for automatic approval are considered by the Government through the FIPB.

Attracting Foreign Direct Investment to India.

Economic policymakers in most countries go out of their way to attract foreign direct investment (FDI). A high level of FDI inflows is an affirmation of the economic policies that the policymakers have been implementing as well as a stamp of approval of the future economic health of that particular country. There is clearly an intense global competition for FDI. India, for its part, has set up the “India Brand Equity Foundation” to try and attract that elusive FDI dollar.

State of FDI in India

•FDI Inflows by SectorCumulative FDI inflows reached just over US$60 billion between August 1991 and July 2007. Since 2002, some sectors such as electrical equipment, services, drugs and pharmaceuticals, cement and gypsum products, metallurgical industries have also been doing very well in attracting FDI The electrical equipment sector and the services sector in particular received the largest shares of total FDI inflows between August 1991 and July 2007. These were followed by the telecommunications, transportation, fuels, and chemicals sectors

Country Sources of FDI Among countries, Mauritius has been the largest

direct investor in India. Firms based in Mauritius invested over US$20 billion in India between August 1991 and July 2007 or over two-fifth of total FDI inflows.

Also, a major part of the investments from Mauritius to India are actually round-tripping by Indian firms, not unlike that between Mainland China and Hong Kong.

Top Country Investors in India

Country Cumulative FDI Inflows, August

1991 to July 2007 (US$

millions

Share of FDI Inflows. August

1991 to July

2007 (percent Mauritius 20,808 41.9

US 6,215 12

UK 3,979 8

Netherlands 2,789 5.6

Japan 2,585 5.1

All Other 13,297 27.4

Total 49,673 100

Fact Sheet On Foreign Direct Investment (FDI) From August 1991 to July 2009india_FDI_July2009.doc.