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Foreign direct investment in India

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  1. 1. Foreign Direct Investment PRESENTED BY :- saket kumar
  2. 2. An Overview <ul><li>What is FDI ???? </li></ul><ul><li>Why we need FDI ???? </li></ul><ul><li>What is the process of the Inflow of FDI ???? </li></ul><ul><li>What are the benefits and costs???? </li></ul>
  3. 3. Defination of FDI <ul><li>Foreign direct investment (FDI) occurs when an investor based in one country (the home country) acquires an asset in another country ( the host country) with the intent to manage the asset. </li></ul>
  4. 4. Types of FDI <ul><li>FDI Types </li></ul><ul><ul><li>Purchase of existing assets </li></ul></ul><ul><ul><ul><li>Quick entry, local market know-how, local financing may be possible, eliminate competitor, buying problems </li></ul></ul></ul><ul><ul><li>New investment </li></ul></ul><ul><ul><ul><li>No local entity exists or is available for sale, local financial incentives may encourage, no inherited problems, long lead time to generation of sales or other desired outcome </li></ul></ul></ul><ul><ul><li>Participation in an international joint-venture </li></ul></ul><ul><ul><ul><li>Shared ownership with local and/or other non-local partner </li></ul></ul></ul>
  5. 5. Which factors encourages FDI? <ul><ul><ul><li>Financial incentives (Funds from local Government) </li></ul></ul></ul><ul><ul><ul><li>Fiscal incentives (Exemption from import duties) </li></ul></ul></ul><ul><ul><ul><li>Indirect incentives (Provides land and infrastructures at less commercial prices) </li></ul></ul></ul>
  6. 6. Which factors encourages FDI? <ul><ul><ul><li>Political stability </li></ul></ul></ul><ul><ul><ul><li>Market potential & accessibility </li></ul></ul></ul><ul><ul><ul><li>Large economy </li></ul></ul></ul><ul><ul><ul><li>Market size </li></ul></ul></ul><ul><ul><ul><li>External debt discourages FDI </li></ul></ul></ul>
  7. 7. Don’t Be Confused Between FDI & FII <ul><li>FII - is Foreign Institutional Investors, i.e, foreign Investment Bankers like Goldman sachs, Merrill lynch, Lehman bros etc...investing in indian other words buying indian stocks.....FII's generally buy in large volumes which has an impact on the stock markets... FDI - is Foreign Direct Investments i.e. a foreign company having a stake in a public sector undertaking in a country for a long period and that company is called Multinational Enterprise. </li></ul>
  8. 8. The Direction of FDI <ul><li>Historically, most FDI has been directed at the developed nations of the world as firms based in advanced countries invested in other markets </li></ul><ul><ul><li>The US has been the favorite target for FDI inflows </li></ul></ul><ul><li>While developed nations still account for the largest share of FDI inflows, FDI into developing nations has increased </li></ul><ul><ul><li>Most recent inflows into developing nations have been targeted at the emerging economies of South, East, and Southeast Asia </li></ul></ul>
  9. 9. Modes of FDI <ul><li>1) By Direction </li></ul><ul><li>* Inward </li></ul><ul><li>*Outward </li></ul><ul><li>2) By Target </li></ul><ul><li>* Mergers and Acquisitions </li></ul><ul><li>* Horizontal FDI </li></ul><ul><li>* Vertical FDI </li></ul><ul><li> (a) Backward Vertical FDI </li></ul><ul><li> (b) Forward Vertical FDI </li></ul><ul><li>3 ) By Motive </li></ul><ul><li>* Resource-Seeking </li></ul><ul><li>* Market-Seeking </li></ul><ul><li>* Efficiency-Seeking </li></ul><ul><li>* Strategic-Asset-Seeking </li></ul>
  10. 10. BY TARGET <ul><li>Mergers and Acquisitions </li></ul><ul><li>Transfers of existing assets from local firms to foreign firms takes place; </li></ul><ul><li>Horizontal FDI </li></ul><ul><li>Investment in the same industry abroad as a firm operates in at home. </li></ul><ul><li>Vertical FDI </li></ul><ul><li>* Backward Vertical FDI </li></ul><ul><li>Where an industry abroad provides inputs for a firm's domestic production process. </li></ul><ul><li>* Forward Vertical FDI </li></ul><ul><li>Where an industry abroad sells the outputs of a firm's domestic production. </li></ul>
  11. 11. BY MOTIVE <ul><ul><li>Resource-Seeking </li></ul></ul><ul><ul><li>This typifies FDI into developing countries, for example seeking natural resources in the Middle East and Africa, or cheap labor in Southeast Asia and Eastern Europe. </li></ul></ul><ul><ul><li>Market-Seeking </li></ul></ul><ul><ul><li>Investments which aim at either penetrating new markets or maintaining existing ones.. </li></ul></ul><ul><ul><li>Efficiency-Seeking </li></ul></ul><ul><ul><li>It is suggested that this type of FDI comes with the expectation that it further increases the profitability of the firm. Typically, this type of FDI is mostly widely practiced between developed economies; especially those within closely integrated markets (e.g. the EU).. </li></ul></ul><ul><ul><li>Strategic-Asset-Seeking </li></ul></ul><ul><ul><li>A tactical investment to prevent the loss of resource to a competitor. Easily compared to that of the oil producers, whom may not need the oil at present, but look to prevent their competitors from having it. </li></ul></ul>
  12. 12. INDIA AN IDEAL INVESTMENT DESTINATION <ul><ul><ul><li>World’s largest democracy </li></ul></ul></ul><ul><ul><ul><li>Second largest emerging market (US$ 2.4 trillion) </li></ul></ul></ul><ul><ul><ul><li>Liberal Foreign Investment Regime </li></ul></ul></ul><ul><ul><ul><li>Skilled and competitive labour force </li></ul></ul></ul><ul><ul><ul><li>Amongst the highest rates of return on investment </li></ul></ul></ul><ul><ul><ul><li>Large domestic market </li></ul></ul></ul>
  13. 13. FDI Approval Procedure Government Route for few sectors Automatic Route in most Sector RBI FIPB No permission required, only to notify RBI within 30 days of issue of shares to foreign investors Approval is granted generally in 30 days
  14. 14. FDI Inflows….Robust Growth FDI Inflows….Robust Growth (Only Equity)
  15. 15. FDI Inflows- Sector -wise Electrical equipment including software moves to over all 2nd position in Nov 2006. Services sector shows spurt in growth and the top sector attracting FDI – moving up from the third position. Spurt in FDI in Real Estate causes the construction sector to the third position in Nov 2006.
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  17. 17. FDI Policy …. Prohibited activities FDI Policy …. Prohibited activities <ul><li>Retail except single brand retailing allowed upto 51% with FIPB approval </li></ul><ul><li>Atomic energy </li></ul><ul><li>Lottery business </li></ul><ul><li>Betting and Gambling </li></ul>
  18. 18. <ul><li>Manufacturing </li></ul><ul><li>100% FDI permitted in all activities under automatic route except: </li></ul><ul><ul><li>Cigar and cigarettes of tobacco - FIPB </li></ul></ul><ul><ul><li>Products reserved for Small Scale Sector </li></ul></ul><ul><ul><ul><li>FDI less than 24% under automatic route </li></ul></ul></ul><ul><ul><ul><li>FDI beyond 24% - FIPB subject to export obligation </li></ul></ul></ul><ul><ul><li>Defence products </li></ul></ul><ul><ul><ul><li>FDI upto 26% - FIPB subject to licensing of Arms and Ammunitions </li></ul></ul></ul>FDI Policy for Industry Sector…Fully permitted FDI Policy for Industry Sector…Fully permitted
  19. 19. FDI Policy for Industry Sector…. Fully permitted FDI Policy for Industry Sector…. Fully permitted <ul><li>Mining </li></ul><ul><li>Coal – FDI upto 100% as per Coal Mines (Nationalization) Act 1977 </li></ul><ul><li>Diamond, Gold, Silver , Minerals – upto 100% under automatic route as MMRD Act </li></ul><ul><li>Atomic minerals – upto 74% in JV with PSUs – FIPB </li></ul><ul><li>Electricity </li></ul><ul><li>FDI upto 100% under automatic route in Generation, Transmission, Distribution and Power Trading as per Electricity Act 2003 </li></ul>
  20. 20. <ul><li>FM Broadcasting (20%) - FIPB </li></ul><ul><li>Uplinking News and CATV Channel - FIPB </li></ul><ul><li>Print Media – News Papers & Periodicals - FIPB </li></ul><ul><li>Insurance - Automatic </li></ul>FDI Policy for Service Sector…. Largely permitted FDI Policy for Service Sector…. Largely permitted Upto 26% Upto 49% <ul><li>Broadcasting - Cable Network, DTH, Setting up hardware - FIPB </li></ul><ul><li>Stock Exchanges - FIPB </li></ul><ul><li>Air Transport Services - Automatic </li></ul>
  21. 21. <ul><li>Telecommunication - FIPB (Beyond 49%) </li></ul><ul><li>Private sector banks - Automatic </li></ul>FDI Policy for Service Sector…. Largely permitted FDI Policy for Service Sector…. Largely permitted <ul><li>Development of existing airports - FIPB (Beyond 74%) </li></ul><ul><li>Publishing scientific magazines - FIPB </li></ul><ul><li>Courier services - FIPB </li></ul>Upto 74% Upto 100%
  22. 22. Political Ideology & FDI
  23. 23. Advantages of FDI <ul><li>Infrastructure and technology transfer </li></ul><ul><li>Increased Productive efficiency due to competition from multinational subsidiaries </li></ul>
  24. 24. Advantages of FDI <ul><li>Faster growth of output and employment </li></ul><ul><li>Consumer Benefits </li></ul>Price Quality Varieties
  25. 25. Advantages of FDI <ul><li>Increase in Exports </li></ul><ul><li>Increase in savings and Investment </li></ul>
  26. 26. Costs of FDI <ul><li>Detriment of the growth of domestic producer and the national economy </li></ul>
  27. 27. Costs of FDI <ul><li>Enviroment and natural resource costs </li></ul><ul><li>Abuse of local culture and traditions Ex </li></ul>FDI Tourism Abuse
  28. 28. Costs of FDI <ul><li>Facilitate hegemony by the dominant US and the western cultures. </li></ul><ul><li>Political Influence (News) </li></ul>Print Entertainments TV
  29. 29. Wish u a merry x-mas and a happy new year!!! The end