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FDI is good


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Published in: Business, Economy & Finance

FDI is good

  1. 1. 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.
  2. 2. Types of FDI 1. Greenfield Investment 2. Mergers and Acquisitions
  3. 3. 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.
  4. 4. Mergers and Acquisition: It occurs when a transfer of existing assets from local firms takes place.
  5. 5. 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
  6. 6. Advantages of FDI (Host Country’s Point of View)  Inflow of equipment  Transfer of technology  Scarce human capital  Financial resources
  7. 7. Incentives To Attract Foreign Firms Fiscal Incentives Financial Incentives Other Incentives
  8. 8. 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)
  9. 9. Financial Incentives: Direct subsidies and subsidized loans, Loan guarantees Guaranteed export credits Low rates of Government insurance
  10. 10. Other Incentives: Low cost and qualified labour Natural resources Political and economic stability Long term market potential
  11. 11. Is FDI always Good? Problem of Adverse Selection FD Investors may tend to retain only High Productivity Firms Problem of Excessive Leverage
  12. 12. 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
  13. 13. 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
  14. 14. FDI in India – FDI prohibited Retail Trading (Except single brand) Atomic Energy Lottery Business Gambling and Betting sector
  15. 15. FDI in India – FDI up to 26% Broadcasting – FM radio, TV channel Print Media Defence Industries Insurance Petroleum and Natural Gas Sector
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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)……
  20. 20. THANK YOU