Fdi and fii economics

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Fdi and fii economics

  1. 1. MEANING OF FOREIGN DIRECT INVESTMENT  Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country
  2. 2. WHY COUNTRIES SEEK FDI ? Domestic capital is inadequate for purpose of economic growth;  Foreign capital is usually essential, at least as a temporary measure, during the period when the capital market is in the process of development;  Foreign capital usually brings it with other scarce productive factors like technical know how, business expertise and knowledge 
  3. 3. WHAT ARE THE MAJOR BENEFITS OF FDI (a) Improves forex position of the country; (b) Employment generation and increase in production ; (c) Help in capital formation by bringing fresh capital; (d) Helps in transfer of new technologies, management skills, intellectual property (e) Increases competition within the local market and this brings higher efficiencies (f) Helps in increasing exports; (g) Increases tax revenues
  4. 4. WHY FDI IS OPPOSED BY LOCAL PEOPLE OR DISADVANTAGES OF FDI (a) Domestic companies fear that they may lose their ownership to overseas company (b) Small enterprises fear that they may not be able to compete with world class large companies and may ultimately be edged out of business; (c) Large giants of the world try to monopolise and take over the highly profitable sectors; (d) Such foreign companies invest more in machinery and intellectual property than in wages of the local people; (e) Government has less control over the functioning of such companies as they usually work as wholly owned subsidiary of an overseas company
  5. 5. BRIEF LATEST DEVELOPMENTS ON FDI in the insurance sector from 26% to 49%;  Allowed51% foreign investment in multi-brand retail,  Relaxed FDI norms for civil aviation and broadcasting sectors. – FDI cap in Broadcasting was raised to 74% from 49%;  Allowed foreign investment in power exchanges 
  6. 6. WHAT IS THE PROCEDURE FOR RECEIVING FOREIGN DIRECT INVESTMENT IN AN INDIAN COMPANY? An Indian company may receive Foreign Direct Investment under the two routes as given under: i. Automatic Route FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time. ii. Government Route FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.
  7. 7. WHAT IS SCOPE OF FDI IN INDIA? WHY WORLD IS LOOKING TOWARDS INDIA FOR FOREIGN DIRECT INVESTMENTS India is the 3rd largest economy of the world in terms of purchasing power parity and thus looks attractive to the world for FDI. Even Government of India, has been trying hard to do away with the FDI caps for majority of the sectors, but there are still critical areas like retailing and insurance where there is lot of opposition from local Indians / Indian companies. Some of the major economic sectors where India can attract investment are as follows: Telecommunications  Apparels  Information Technology  Pharma  Auto parts  Jewellery  Chemicals
  8. 8. NAME THE SECTORS WHERE FDI IS NOT ALLOWED IN INDIA, BOTH UNDER THE AUTOMATIC ROUTE AS WELL AS UNDER THE GOVERNMENT ROUTE? FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors: i) Atomic Energy ii) Lottery Business iii) Gambling and Betting iv) Business of Chit Fund v) Nidhi Company vi) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations) vii) Housing and Real Estate business (except development of townships, construction of residen-tial/commercial premises, roads or bridges to the extent specified in notification viii) Trading in Transferable Development Rights (TDRs).
  9. 9. NAME THE AUTHORITIES DEALING WITH FOREIGN INVESTMENT: Foreign Investment Promotion Board Secretariat for Industrial Assistance Foreign Investment Implementation Authority (FIIA) Investment Commission Project Approval Board Reserve Bank of India
  10. 10. WHAT ARE THE TOTAL INFLOWS OF FDI IN INDIA For the FY 2012-13 (for the month of July, 2012) was US$ 1.47 billion.  Amount of FDI equity inflows for the financial year 2012-13 (from April 2012 to July 2012) stood at US$ 5.90 billion.  Cumulative amount of FDI (from April 2000 to July 2012) into India stood at US$ 176.76 billion 
  11. 11. WHICH COUNTRY TOPS IN INFLOW OF FDI SINCE 2000-2010? TOP 5 COUNTRIES FOR FDI Country Mauritius Inflows in absolute Terms (million US dollars) Iinflow in % age terms 42% 50164 Singapore 9 11275 USA 7 8914 UK 5 6158 Netherlands 4 4968
  12. 12. FOREIGN INSTITUTIONAL INVESTMENT The term foreign institutional investment denotes all those investors or investment companies that are not located within the territory of the country in which they are investing. These are actually the outsiders in the financial markets of the particular company. Foreign institutional investment is a common term in the financial sector of India  Who Can Get Registered As Foreign Institutional Investors (FII) in India? Foreign Institutional investors also known as International institutional investors need to register themselves with the Security and Exchange Board of India (SEBI) in order to participate in the Indian market. 
  13. 13. FOREIGN CORPORATES AND INDIVIDUALS AND BELONG TO ANY OF THE UNDER GIVEN CATEGORIES CAN BE REGISTERED FOR FII Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Foundations Charitable Trusts / Charitable Societies
  14. 14. How Much Is The Registration Fee For FII Applicants? 5000 USD  What Is The Validity Period Of FII Registration? The FII registration is valid for 5 years. After expiry of 5 years, the registration needs to be renewed. 
  15. 15. WHAT ARE THE ADVANTAGES OF FOREIGN INSTITUTIONAL INVESTMENT (FII) IN INDIA? Increases Forex reserves  Increases domestic savings  Increases domestic investments  Availability of capital reserve 
  16. 16. IS THERE ANY DISADVANTAGES OF FOREIGN INSTITUTIONAL INVESTMENT (FII) IN INDIA? Problem of inflation  False representation of economy  Problem for small investors  Hot Money FII investment is frequently referred to as hot money for the reason that it can leave the country at the same speed at which it comes in. 

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