Foreign direct investment is that investment, which is made to serve the
business interests of the investor in a company, which is in a different
nation distinct from the investor's country of origin.
The parent enterprise through its foreign direct investment effort seeks
to exercise substantial “Control” over the foreign affiliate company.
Exp. - An American company taking a majority stake in a company in
1) By Direction
2) By Target
Mergers and Acquisitions
3 )By Motive
Available Financial Instruments
Equity Shares, Compulsorily Convertible Preference
Shares and compulsorily Convertible Debentures.
Not Available to Investors who are
Citizens of Pakistan OR Entities of Pakistan
Available with approval of FIPB (AP (DIR) No.22
To Citizens & Entities of Bangladesh
Financial incentives (Funds from local Government)
Fiscal incentives (Exemption from import duties)
Indirect incentives (Provides land and other resources)
Market potential & accessibility
Rank Country Total 2000 to % of
2009 Total of all
1. Mauritius 39,379 44
2. Singapore 8,071 9
3. U.S.A 6,508 7
4. U.K 5,289 6
5. Netherlands 3,701 4
5. Cyprus 2,579 3
6. Germany 2,379 3
7. France 1,233 1
CONTRIBUTION IN FDI (in %)
MAURITIUS SINGAPORE U.S.A.
U.K. JAPAN NETHERLANDS
Investing in India – Entry Routes
Investing in India
General rule By exception
No prior permission Prior Government
required Approval needed
Only information to the
Reserve Bank of India Decision generally
within 15 days of inflow/ Within 4-6 weeks
Issue of shares
Sector/Activity FDI Cap/Equity Entry Route
Airports 100% Automatic
Petroleum & Natural
26% (For PSUs) FIPB
(b) Refining 100% ( Private Automatic
Other than Refining 100% Automatic
Basic and 74% Automatic up to 49%
Manufacture of telecom
Power ( Except Atomic
distribution and Power
Employment and skill levels
Technology diffusion and knowledge transfer
Linkages and spillover to domestic firms
Access to international markets
Gambling and betting
Agricultural or plantation activities of
(excluding Floriculture, Horticulture, Development of Seeds, Animal
Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms
etc., under controlled conditions and services related to agro and
allied sectors) and Plantations other than Tea Plantations)
An investor or investment fund that is from or
registered in a country outside of the one in which it is
Institutional investors include
pension funds and mutual funds.
Applicant’s track record, professional competence, financial
general reputation of fairness and integrity. (The applicant
should have been in existence for at least one year)
whether the applicant is registered with and
regulated by an appropriate Foreign Regulatory
Authority in the same capacity in which the application is
filed with SEBI
Whether the applicant is a fit & proper person.
FII in Rs Cr.
Foreign Institutional Investor
• Foreign Institutional Investors can individually
purchase up to 10% and collectively up to 24% of
the paid up share capital of any company.
• This limit of 24% can be increased to sectoral cap/
statutory limit applicable to the Indian company by
passing Board or shareholder resolution.
• FIIs can purchase shares through open offer/ private
placement/ stock exchange.
• shares purchased by FII through stock exchange
can’t be sold through a private arrangement.
Unavailability of Corporate Problem of inflation
Debt Reduces flexibility of Policy
Increase Forex Reserve
Increase Domestic Savings
False representation of
Large Availability of Capital Can’t be used for long term
Problems for small investors
FDI is when a foreign FII is when a foreign
company brings capital into a company buys equity in any
company or economy to set up company through stock
a production or some other market.
FDI gives some CONTROL in FII does not give any
operation of foreign company control in operation of
to the foreign company foreign company
FDI involves in direct FII is mostly the short term
production activity and is investment mostly in
long term in nature. financial market.
It enables a degree of It does not involve in degree
control in the company. of control in the company.
FDI brings long term FII brings short term