Foreign direct investments


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Foreign direct investments

  2. 2.  Foreign Direct Investment (FDI) is a…..  Direct investment into production or business in a country by a company of another country.  In the form of either buying a company in a target country or by expanding operations of an existing business in that country.  Example : - A Chinese Company building a factory and a supply chain in the US in order to tap into the American market would be an example of Chinese foreign direct investment into America. WHAT IS FOREIGN DIRECT INVESTMENT ?
  3. 3.  Foreign Direct Investment (FDI) can be defined as  DEFINITION :- Foreign direct investment includes “merges and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intracompany loans.” DEFINITION OF FOREIGN DIRECT INVESTMENT
  4. 4.  In regard to National Income, National Income Equation Y = C+I+G+(X-M)Where, I = Investment plus foreign direct investment.  ASSUMPTIONS :-  FDI is a net inflow of investment (inflow minus outflow) to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.  FDI is the sum of equity capital, other long term capital and short term capital as shown in the balance of payments.  FDI involves participation in management, joint ventures, transfer of technology and expertise. RELATIONSHIP BETWEEN NATIONAL INCOME AND FOREIGN DIRECT INVESTMENT
  5. 5.  HORIZONATAL FDI :- Horizontal FDIs arises when a firm duplicates its home country based activities at the same value chain stage in a host country through FDI. In short, it is the investment in the same industry abroad as a firm operates in at home.  VERTICAL FDI :- Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chain i.e. when a firm perform value – adding activities stage by stage in a vertical fashion in a host country. TYPES OF FOREIGN DIRECT INVESTMENT
  6. 6.  The foreign direct investor may acquire voting power of an enterprise in an economy of a host country through the following methods :-  By incorporating a wholly owned subsidiary or company anywhere.  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. HOW THE FOREIGN DIRECT INVESTOR CAN PARTICIPATE IN AN ENTERPRISE IN A HOST COUNTRY ?
  7. 7.  Foreign Direct Investment incentives may take the following forms : - Low corporate & Individual tax & other types of tax concessions. Preferable tariffs Special Economic Zones Export Processing Zones Bonded Warehouses Investment financial subsidies Infrastructure subsidies R&D supports FOREIGN DIRECT INVESTMENT INCENTIVES
  8. 8.  FDI has proven to be one of the fastest mean and imposing higher impact on growth and development whether it’s a field of education, healthcare, construction, etc.  Beneficial to both investing firms and hosting countries, as it embarks large jumps in development if prominently practiced and followed well.  Eking out advances with even moderate long term impacts.  FDIs are found to work well and are beneficial when they are engaged with local realities, adjusting contracts and reconfiguring policies as IMPORTANCE OF FOREIGN DIRECT INVESTMENT
  9. 9.  Foreign investment was introduced in 1991 as Foreign Exchange Management Act (FEMA), driven by Finance Minister Manmohan Singh.  A recent UNCTAD survey projected India as the second most important FDI destination for transactional corporations during 2010 – 2012.  The sectors that attracted the higher inflows were services, telecommunication, construction activities and computer software and hardware.  Mauritius, Singapore, United States and United Kingdom are among the leading sources of FDI. FOREIGN DIRECT INVESTMENT IN INDIA
  10. 10.  Based on UNCTAD data FDI flows were $10.4 billion, a drop of 43 % from the first half of the last year. FOREIGN DIRECT INVESTMENT IN INDIA
  11. 11. PRESENT FDI LIMITS IN INDIA – ALL SECTORS SECTORS LIMIT Hotels & Tourism, Roads & Highways, Education, Advertisement, Farms, Petrochemicals, Pharmaceuticals, Coal & Lignite 100 % Multi brand Retails 51 % Civil Aviation Incl: Airports, scheduled & non scheduled domestic airlines, helicopter services, ground & maintenance services, repair organizations, flying training institutes & technical training institutes 49 % Insurance Sector FDI in insurance sector, as prescribed in Insurance Act 1999, is under automatic route 49 %
  12. 12. SECTORS LIMIT Defense Sector FDI in defense sector is subject to industrial license under the Industries Act 1951 through government approval route 26 % Print Media Publishing Newspapers and periodicals dealing with news & current affairs; publication of Indian editor of foreign magzines dealing with news & current affairs. 26 % Broadcasting Sector FM Radio Stations Cable Networks Direct -2-Home (d2h) service Headend-In-The-Sky (HITS) Setting up hardware facilities (such as HUB) 20 % 49 % 49 % 74 % 49 %
  13. 13. SECTORS LIMIT Credit Information Companies 49 % Banking Sector New Bank (after August 2011) Private Sector Banks Public Sector Banks 49 % 74 % 49 %
  14. 14.  FDIs can affect the policies intended to protect the growth of local investment or infant industry.  The nature of FDI depends upon the jurisdiction’s need and policies. FDI is not restricted to developing countries.  To secure greatest benefits for lesser costs, FDI tunnels are created that focuses on particular company needs & negotiable specific terms like certain levels of trades, concessions by host jurisdiction, etc.  Without cost concessions, hastening the transfer of premium paying skills to host country work force, etc can affect FDI policy. DIFFICULTIES IN LIMITING FOREIGN DIRECT INVESTMENT
  15. 15.  Apolitical activities like changing concessions policies unethically, curbing protection of small business from large or global environment, etc. can lead to corruption.  The lead up for a big FDI can be risky.  Market valuations can shift dramatically in short times, and because local circumstances and global economy can vary rapidly. Hence, negotiating and planning FDI is often quite irrational.