Factors affecting foreign investments in India

1. Foreign Investment in India
LECTURE 15

2. • FDI is investment in real assets such as factories, offices
,lands ,buildings, capital goods etc.
• FII is investment in financial assets such as in bonds and
stocks, denominated in national currency.

3. FORMS OF FOREIGN DIRECT INVESTMENT
BY TARGET
GREEN FIELD INVESTMENT- Direct investment in new
facilities.
TOYOTA IN UK AND TOYOTA IN NORTH AMERICA
 BROWN FIELD INVESTMENT
• FDI that involves the purchase of an existing plant or
firm, rather then construction of a new plant. Contrasts
with green field investment

4. • Why need for Foreign Investment?

5. Need for Foreign Investment
• Foreign investment can fill the gap between desired investment and
locally mobilised savings. Local capital markets are often not well
developed.
• Foreign investment can supply a package of needed resources such as
management experience, entrepreneurial abilities,​and organisational and
technological skills.
• A number of underdeveloped countries (UDCs) possess huge mineral
resources, do not possess the required technical skill and expertise to
accomplish this task. Therefore, they have to depend upon a foreign
capital.

6. • A foreign investment plays a pivotal role in the development of basic
infrastructure such as transport and communication system, generation
and distribution of electricity, development of irrigation facilities.
• A foreign investment provides the host country a better access to foreign
markets.
• Enhanced export possibility contributes to the growth of the host
economies by relaxing the demand side constraints on growth.
• Consumers in the developing countries stand to gain from a foreign
investment through new products and improved quality of goods at
competitive prices.
• The profit generation by a foreign investment in the host country
contributes to the corporate tax revenue.

7. Determinants of Foreign Investment

8. Determinants of Foreign Investment
Factor endowments
• The availability of and access to basic inputs such as oil and gas, minerals,
forestry products, skilled and unskilled,labour force, determines the extent
of foreign investment in the country,
• Political Stability
• In many countries the political situation is very unstable.
The relevant rules and regulations of the host country that
are governing the foreign investment decided the quantum ​of the latter.

9. • Market size
• Price and Exchange rates
• Wage rates

10. Political Ideology & FDI

11. How Does FDI Benefit ?
The Host Country/home country
• Home country : USA
• Host county : India

12. How Does FDI Benefit
The Host Country?(India)
 There are four main benefits of inward FDI for a host country
1. Resource transfer effects - FDI brings capital, technology, and
management resources
2. Employment effects - FDI can bring jobs
3. BOP Effects

13. How Does FDI Benefit
The Home Country?
 The benefits of FDI for the home country include
1. The effect on the capital account of the home country’s balance
of payments from the inward flow of foreign earnings
2. The employment effects that arise from outward FDI
3. The gains from learning valuable skills from foreign markets that
can subsequently be transferred back to the home country

14. FDI in India :Government Policies
• Pre-liberalization Policies
• Indian capital needs to be supplemented by foreign capital not only
because the national savings alone would not be enough for the rapid
development of the country on the desired scale, but also because in
many cases, scientific, technical, and industrial knowledge and capital
equipment can best be secured along with the foreign capital.
• During the Second Plan period, the emphasis was on increasing the
foreign exchange resources of the country, and increased foreign
investment was encouraged in order to finance the import of the
required plant and equipment.

15. FDI IN INDIA
• Economic reforms
• Liberalization of FDI policy
• Effected the magnitude and the pattern of FDI inflows that were
received by India.​

16. FDI POLICY IN INDIA
• The Foreign Investment Promotion Board (FIPB) is being replaced by
the Foreign Investment Facilitation Portal (FIFP) to speed up the FDI
inflow and to increase the transparency in the FDI approvals in the
country. FIFP replaced FIPB in May, 2017.
• Why FIFP replaced the FIPB?
• The basic reason behind the replacement of the FIPB is to increase
the transparency and speed up the clearance procedure in the FDI
proposals so that FDI inflow can be increased in the country.

17. What is the procedure for receiving Foreign Direct Investment in
an Indian company?
• An Indian company may receive Foreign Direct
Investment under the two routes as given under:
 Automatic Route
• FDI is allowed under the automatic route without prior
approval either of the Government or the Reserve Bank
of India in all activities/sectors as specified in the
consolidated FDI Policy, issued by the Government of
India from time to time.
 Government Route
• FDI in activities not covered under the automatic route
requires prior approval of the Government which are
considered by the Foreign Investment Promotion Board
(FIPB), Department of Economic Affairs, Ministry of
Finance.

18. FDI caps
• Agriculture & Animal Husbandry 100% automatic
• SINGLE BRAND RETAIL 100%
• MULTI BRAND RETAIL 51%

19. Upto 100% FDI permitted under Automatic &
Government
• Air transport services (Scheduled Air Transport Service/ Domestic Scheduled
Passenger Airline; Regional Air Transport Service) – upto 49% (auto) (Upto 100%
under automatic route for NRIs) + above 49% and up to 74% (Govt.)
• Banking (Private sector) – upto 49% (auto) + above 49% and up to 74% (Govt)
• Biotechnology (brownfield) – upto 74% (auto) + above 74% (Govt)
• Defence – upto 74% (auto) + above 74% (Govt)
• Healthcare (Brownfield) – upto 74% (auto) + above 74% (Govt)
• Pharmaceuticals (Brownfield) – upto 74% (auto) + above 74% (Govt)
• Private Security Agencies – upto 79% (auto) + above 49% and up to 74% (Govt)
• Telecom Services – upto 49% (auto) + above 49% (Govt)

21. • FDI Prohibited
• Atomic energy
• Lottery business
• Gambling and betting sector
• Plantation except tea

22. FDI inflows in India 2023
• The total FDI inflows received in FY 2023, which includes equity
inflows, reinvested earnings, and other capital sources,
amounted to US$70.97 billion – a decrease from the US$84.83
billion recorded during FY 2022.
• https://indianexpress.com/article/opinion/columns/indias-rise-is-the-
big-story-so-wheres-the-fdi-8965716/
• https://www.youtube.com/watch?v=ht87dkjku2M
• https://www.forbesindia.com/article/explainers/fdi-in-india-
inflows/89609/1

23. Largest investing country in India, 2023
Singapore accounted for the highest FDI equity inflow to India,
which was valued at over 17 billion U.S. dollars followed by
the Mauritius with over six billion dollars.

26. FDI in India state wise, 2023
Maharashtra emerged as the top recipient of FDI
with a total of US$14.80 billion.
Karnataka followed with US$10.42 billion, while
Delhi and Gujarat attracted US$7.53 billion and
US$4.71 billion, respectively.

27. https://dea.gov.in/sites/default/files/Draft%20ODI%20Factshee
t%20Nov%202023.pdf

28. FDI confidence Index
• The FDI Confidence Index is constructed using primary data from a
proprietary survey administered to senior executives of the world's
leading corporations. Respondents include C-level executives and
regional and business heads.
• The survey of 300 global executives by global consulting firm A T
Kearney found that the US was ranked top destination in the world
for foreign direct investment.

35. • Lobbying, any attempt by individuals or private interest
groups to influence the decisions of government