FDI and investments in India

2. International investment or capital
flows
It falls into four principal categorie
•commercial loans,
•official flows,
•foreign direct investment (FDI), and
•Foreign portfolio investment (FPI).
Commercial loans, which primarily take the form
of bank loans issued to foreign businesses or
governments.

3. • Foreign direct investment (FDI) pertains to
international investment in which the investor
obtains a lasting interest in an enterprise in
another country.
• It may take the form of buying or constructing
a factory in a foreign country or adding
improvements to such a facility, in the form of
property, plants, or equipment.

4. • FDI is calculated to include all kinds of capital
contributions, such as the purchases of stocks, as
well as the reinvestment of earnings by a wholly
owned company incorporated abroad
(subsidiary), and the lending of funds to a foreign
subsidiary or branch.
• The reinvestment of earnings and transfer of
assets between a parent company and its
subsidiary often constitutes a significant part of
FDI calculations.

5. • According to the United Nations Conference
on Trade and Development (UNCTAD), the
global expansion of FDI is currently being
driven by over 65,000 transnational
corporations with more than 850,000 foreign
affiliates.

6. Foreign portfolio investment (FPI)
• It is a category of investment instruments
that is more easily traded, may be less
permanent, and do not represent a controlling
stake in an enterprise. These include
investments via equity instruments (stocks) or
debt (bonds) of a foreign enterprise which
does not necessarily represent a long-term
interest.

7. • Stocks:
– dividend payments
– holder owns a part of a company
– possible voting rights
– open-ended holding period
• Bonds:
– interest payments
– ownership of bond rights only
– no voting rights
– specific holding period

8. Foreign Direct Investment
• FDI tends to involve establishing more of a substantial, long-
term interest in the economy of a foreign country. Because of
the significantly higher level of investment required,
• FDI is usually undertaken by multinational companies or
venture capital firms.
• The nature of FDI, such as creating or acquiring a
manufacturing facility, makes it much more difficult to
liquidate or pull out of the investment.
• FDI is usually undertaken with essentially the same attitude as
establishing a business in one's own country, with the intention
to make the business profitable and to continue operating it
indefinitely.
• FDI includes having control over the business invested in and
being able to manage it directly.

9. Foreign Portfolio Investment
• FPI typically has a shorter time frame for investment
return than FDI.
• Any equity investment, FPI investors usually expect to
quickly realize a profit on their investments
• FPI doesn't offer control over the business entity in
which the investment is made. Because securities are
easily traded, the liquidity of FPIs makes them much
easier to sell than FDIs.
• FPIs are more accessible for the average investor than
FDIs, since they require much less investment capital.

10. • When making foreign investments, investors
have to consider economic factors as well as
other risk factors, such as political instability
and currency exchange risk

11. Advantages of Foreign Direct
Investment
• Economic Development Stimulation
• Easy International Trade
• Employment and Economic Boost
• Development of Human Capital Resources
• Tax Incentives
• Resource Transfer
• Reduced Disparity Between Revenues and
Costs
• Increased Productivity
• Increment in Income

12. Disadvantages of Foreign Direct
Investment
• Hindrance to Domestic Investment
• Risk from Political Changes
• Negative Influence on Exchange Rates
• Higher Costs
• Economic Non-Viability
• Expropriation
• Negative Impact on the Country’s Investment
• Modern-Day Economic Colonialism

13. • MoU between Konkan Railway Corporation
Limited (KRCL) and Swiss Federal Institute of
Technology, Zurich. MoU between Ministry of
Railways and Federal Department of the
Environment, Transport, Energy and
Communications of the Swiss Federation on
Technical Cooperation in Rail Sector.

15. Prohibited Sectors
• Lottery Business including Government/private lottery, online
lotteries, etc.
• Gambling and Betting including casinos etc.
• Chit funds
• Nidhi company
• Trading in Transferable Development Rights (TDRs)
• Real Estate Business or Construction of Farm Houses (Real estate
business does not include development of townships, construction
of residential /commercial premises, roads or bridges )
• Manufacturing of tobacco or of tobacco substitutes
• Activities/sectors not open to private sector investment e.g. Atomic
Energy and Railway operations (other than permitted activities)