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Fdi inflows in india


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Fdi inflows in india

  1. 1. Presentation by : Gourav Ranjan Sinha FDI scenario in India
  2. 2. An investment made by a company or entity based in one country into a company or entity based in another country Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made
  3. 3. Threshold-10% of voting stock or shares of investee company as by OECD By acquiring shares of overseas company Setting up a subsidiary or associate company Merger or a joint venture
  4. 4. Types of FDI-Horizontal, Vertical and Platform 1.Horizontal FDI When a firm duplicates its home country based activities at the same value chain stage in a host country through FDI Decreases international trade as the product of them is usually aimed at host country E.g. Toyota assembling cars in both Japan and UK 2.Vertical FDI When a firm through FDI moves upstream or downstream in different value chains •Backward Vertical FDI ( as a supplier) e.g. Toyota acquires tyre manufacturer •Forward Vertical FDI (as a distributor) e.g. Toyota acquiring distributorship in USA
  5. 5. Platform FDI adds to the export-led growth of both source as well as destination countries 3. Platform FDI Source Country INVESTMENT Destination Country Third Country ( High -Cost Economy ) ( Low-Cost Economy )
  6. 6. Liberalisation policies helped FDI enter India in 1991 and since then it has seen unprecedented growth Causes •India faced a balance of payment crisis. •IMF required India to take a series of structural economic reforms Key features of the reforms •Opening up of international trade and investment •De-regulation •Initiation of privatisation •Tax reforms •Inflation controlling measures After independence in 1947,FDI gained attention of the policy makers for acquiring advanced technology and to mobilize foreign exchange resources. However the socialist policies of the leaders hindered the approach
  7. 7. Due to the liberalisation policies undertaken in 1991, the FDI inflows had seen a boom 0.094471 0.86114 0.981494 2.530522 2.745551 0 0.5 1 1.5 2 2.5 3 1992-93 1997-98 2001-02 2007-08 2009-10 FDI as % of GDP 256 565.5 916 933.2 2705 18486 123378 0 20000 40000 60000 80000 100000 120000 140000 Mid 1948 Mar-64 Mar-74 Mar-80 Mar-90 Mar-00 Mar-10 Amount of FDI (in crore) Source: Research Journal of Management Sciences, Sept. 2012 Source: Reserve Bank of India (RBI), various bulletins The marked transition in the FDI inflows from 1990 to 2000 proves the positive impact of liberalisation policies in India on the FDI inflows There is a significant increase in the % contribution of FDI to GDP and is expected to grow in the coming years
  8. 8. Approval of FDI in various sectors in India 1. Automatic route • Without prior approval either of Government or RBI in all activities/sectors as specified in the consolidated FDI policy issued by Government of India e.g. Agriculture , Civil Aviation etc. 2. Government route • FDI in activities not covered under the automatic route requires approval of Government of India considered by Foreign Investment Promotions Board ( FIPB ) • FIPB set up the government for processing of FDI proposals in the country e.g. Print Media, Multi-brand retail etc.
  9. 9. FDI is permitted up to some extent in the below mentioned Sectors Sector FDI Cap / Equity Route Agriculture 100 % Automatic Mining & Iron-Steel industry 100 % Automatic Alcohol 100 % Automatic Defence production 26 % FIPB Drugs and Pharmaceutical 100 % Automatic Power 100 % Automatic Civil Aviation 49 % FIPB Banking( Pvt.) 74 %( FDI + FII ) Automatic Retail 100 %- single brand 51 %- multi-brand Automatic FIPB Insurance 26 % Automatic Petroleum and Refining 49 %( PSUs), 100 %( Pvt. Companies) FIPB( PSUs), Automatic ( Pvt. ) Telecommunications 100 % Automatic Source : Reserve Bank of India ( RBI )  The Government of India (GoI) has been selective in opening various sectors for FDI. Gradually different sectors were opened for investment in FDI with varying rates of sectoral caps.
  10. 10. The services sector accounts for most of the FDI inflows relatively than the manufacturing and primary sector 19.9 8 7.4 6.9 6.8 2 6.5 2.2 2 2 0.6 0 5 10 15 20 25 Percent Share ( 2000-2011)  Telecom, software, Housing and Real estate and construction have witnessed more than 5% increment of FDI during 2000 and 2012  The sectors who have given support by the government have got good share of FDI inflow Source: International Journal of Scientific and Research Publications, Volume 2, Issue 12, December 2012 The conditions for the growth of services sector is apt in India
  11. 11. Though India constitutes very less amount of the total share of FDI of the world, it has the potential to increase it significantly 0 2 4 6 8 10 12 14 % of world FDI 12.41 8.96 4.83 3.81 1.89 0.49 0.13 Source : UNCTAD, 2012 India with 1.89% of world FDI inflows is catching up major economies like USA and China and emerging economies of Brazil and Russia 0 5 10 15 20 25 30 35 40 45 42 38 25 18 15 12 Developed Economies Developing Economies ( x )- Ranking in 2011 Source : UNCTAD (Percentage of respondents selecting economy as a top destination) India is turning out to overtake developed economies to become the best host country for FDI
  12. 12. Few Policy recommendations for enhancing FDI inflows into India  Particular attention should also be paid to the removal of restrictions on FDI in the services sectors -- including telecoms, banking and insurance, aviation etc as this will help ease transactions costs for both consumers and business  Over and above the creation of a business-friendly environment, it may be important for a potential host country to actively undertake investment-promotion policies to fill in information gaps or correct perception gaps that may hinder FDI inflows  While India must do image-building exercises to promote it as a favourable investment location; it desperately needs to get rid of the tag that it can only do services and not manufacturing
  13. 13. India needs to put in place a comprehensive development strategy, which includes being open to trade and FDI There need to be greater coordination between the centre and states to ensure that the substantial foreign interest in investing in India gets translated into actual investment flows to the state  India should continue to work towards developing a deep and liquid corporate debt market  India should consciously work towards attracting greater FDI into R&D as a means of strengthening the country’s technological prowess and competitiveness  India needs massive investments to sustain high-quality economic growth, particularly in the energy and infrastructure sectors
  14. 14. Thank You! "There is a need of minutely analysing the effects of FDI in a country and the economic rationale behind it and it is not correct to look for a general consensus of whether FDI should be allowed or protested“ - Amartya Sen , Nobel laureate