Foreign Investment In INDIA Foreign Direct Investment FDI

Foreign Investment In INDIA

Foreign Direct Investment (FDI) �What is FDI �Why we need FDI �Process of the Inflow of FDI �Benefits �Types �Advantages and disadvantages �FII �Diff between FII and FDI

Modes of FDI 1) By Direction * Inward *Outward 2) By Target * Mergers and Acquisitions * Horizontal FDI * Vertical FDI (a) Backward Vertical FDI (b) Forward Vertical FDI 3 )By Motive * Resource-Seeking * Market-Seeking * Efficiency-Seeking

Factors Affecting FDI �Financial incentives (Funds from local Government) �Fiscal incentives (Exemption from import duties) �Indirect incentives (Provides land �Political stability �Market potential & accessibility �Large economy �Market size

Why India? �Liberal, largest democracy, Political Stability �Second largest emerging market (US$ 2. 4 trillion) �Skilled and competitive labors force �highest rates of return on investment �one hundred of the Fortune 500 have R & D facilities in India �Second largest group of software developers after the U. S. �lists 6, 500 companies on the Bombay Stock Exchange (only the NYSE has more)

Why India (cont. ) � World's fourth largest economy & second largest pharmaceutical industry � growth over the past few years averaging 8% � has a middle class estimated at 300 million out of a total population of 1 billion � Destination for business process outsourcing, Knowledge processing etc. � Second largest English-speaking, scientific, technical and executive manpower � Low costs & Tax exemptions in SEZ � Tax incentives for IT , business process outsourcing and KPO companies

Government policies �Automatic Route �Prior Permission (FIPB)

Investing in India – Entry Routes Investing in India Automatic Route Prior Permission (FIPB) General rule No prior permission required By exception Prior Government Approval needed Only information to the Reserve Bank of India within 30 days of inflow/ Issue of shares Decision generally Within 4 -6 weeks

FDI Investment Sectors � Prohibited activities � Atomic energy � Arms and ammunition � Lottery business � Betting and Gambling � Aircraft and warships � Coal lignite Fully permitted Activities n Cigar and cigarettes of tobacco n Coal, Roads & Highways n Diamond, Gold, Silver , Minerals n Atomic minerals n Electricity n Hotel, hospitals

n n n n n Retail I. T Oil & Energy Power sector Pharmaceuticals & Chemicals n n n Real state Mining Mobile Sector Automobile Telecommunication FDI inflows In real estate US$ 5 Billion FDI inflows Retail US$ 20 Billion by 2010 FDI inflows in Mining US$ 2, 5 Billion per N. M. FDI inflows in Telecommunication US$ 24 Billion

Major Investments Companies Sector Investment Wal mart, Marks Retail US$ 10 Billion Intel Corp. I. T US$ 40 Billion British & cairn Oil & Energy US$ 2 Billion Essar power Power sector US$ 2 Billion Toyota Automobile US$ 10. 51 Billion Panasonic Telecommunicati on US$ 200 million

What is an FII? ? �An institution established outside India, which invests in securities traded on the markets in India e. g. � � � � � Pension Funds Mutual Funds Investment Trust Insurance companies Endowment Funds University Funds Foundations or Charitable Trusts Asset Management Companies Power of Attorney Holders Bank

FII Vs FDI �FII is Foreign Institutional Investment: It is investment made by foreign Mutual Funds in the Indian Market. �FDI is Foreign Direct Investment: It is the investment made by Foreign Multinational companies in India.

�Foreign Institutional Investors (FII) �Foreign investment banks are not permitted to directly invest in shares on the Indian stock exchange �Makes investments on behalf of foreign investors, referred to as “sub-accounts”

�Foreign Institutional Investors (FII) �FIIs may invest in: �securities in the primary and secondary markets (shares, debentures, warrants of listed and unlisted companies) �units issued by domestic mutual funds �dated Government securities �derivatives traded on a recognized stock exchange �commercial paper �debt instruments – provided a 70/30 equity/debt ratio is maintained

�Foreign Institutional Investors (FII) �Limits on the type and amount of investments apply to FIIs �no more than 10% of the equity in any one company �no more than 10% in the equity in any one company on behalf of a fund sub-account �no more than 5% in the equity in any one company on behalf of a corporate/individual sub-account �no more than 24% in the aggregate of the total issued capital of a company to be held by FIIs

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