2. Foreign Direct Investment (FDI)
Purchase of physical assets or a significant amount of
ownership (stock) of a company in another geography in
order to gain a measure of management control.

3. Types of FDI
1. Greenfield Investment
2. Mergers and Acquisitions

4. Greenfield Investment:
It is the direct investment in new facilities or
the expansion of existing facilities. It is the
principal mode of investing in developing
countries.

5. Mergers and Acquisition:
It occurs when a transfer of existing assets from
local firms takes place.

6. Advantages of FDI (Firm’s Point of View)
Gain a foothold in a new geographic market
Increase a firm’s global competitiveness and
positioning
Fill gaps in a company’s product lines in a global
industry
Reduce costs in such areas as R&D, production, and
distribution

7. Advantages of FDI (Host Country’s Point of View)
 Inflow of equipment
 Transfer of technology
 Scarce human capital
 Financial resources

8. Incentives To Attract Foreign Firms
Fiscal Incentives
Financial Incentives
Other Incentives

9. Fiscal incentives:
Tax rebate and holidays
Various export and import based incentives
Losses against future profits
Accelerated capital depreciation
Import based incentives: Duty exemptions; tax credits
(on materials)

10. Financial Incentives:
Direct subsidies and subsidized loans,
Loan guarantees
Guaranteed export credits
Low rates of Government insurance

11. Other Incentives:
Low cost and qualified labour
Natural resources
Political and economic stability
Long term market potential

12. Is FDI always Good?
Problem of Adverse Selection
FD Investors may tend to retain only High
Productivity Firms
Problem of Excessive Leverage

13. FDI in developing countries – The Future
Size of Local Markets will loose relevance
Shift from Market-Seeking FDI to
Efficiency-Seeking FDI
Policies should not be discriminatory

14. FDI in India – The Story so far
2nd most attractive destination – AT Kearney
Index
2nd most attractive investment destination
among transnational corporations – UNCTAD’s
‘World Investment report’
Most attractive location for off-shoring of
services activities – AT Kearney Global Services
location Index

15. FDI in India – FDI prohibited
Retail Trading (Except single brand)
Atomic Energy
Lottery Business
Gambling and Betting sector

16. FDI in India – FDI up to 26%
Broadcasting – FM radio, TV channel
Print Media
Defence Industries
Insurance
Petroleum and Natural Gas Sector

17. FDI in India – FDI upto 49%
Broadcasting – Hardware facilities, Cable
Network, DTH
Domestic Airlines and Air Transport Services
Telecommunication Services – basic & cellular
(over 49 and up to 79% require FIBP approval)
Infrastructure
Asset reconstruction

18. FDI in India – FDI up to 74%
Development of existing airports
ISPs
Establishment and operation of satellites
Atomic Minerals
Private Sector banks
Single Brand retailing

19. FDI in India – FDI upto 100%
 Greenfield Airports
 Mining of coal and lignite
 Petroleum Sector – Market Study and formulation
 Courier services
 Tea Sector
 Non banking finance corporations
 Domestic Airlines
 Power Trading
 Cigarettes
 Alcohol

20. Conclusion
FDI is a major source of technology transfer in a developing
country. Besides this, it gives boost to infrastructural and sectoral
developments. It creates employment and increases in
competition in market. It helps a country grow potentially and at
a faster pace. Many countries (mainly China and India) have
observed the positive effects of FDIs in the recent times. Major
concern are the policies which will help in attracting more
investments. Hence a country should keep in mind all the pros
and cons of FDIs while deciding the policies, which will end up
in country’s future growth. As rightly said by Sh. Kamal Nath
(Minister of Commerce and Industry, Govt. of India)……

22. THANK YOU