Foreign direct investment (FDI) refers to long-term cross-border investment made by a firm in business activities located in another economy. FDI can take several forms including mergers and acquisitions, joint ventures, and wholly owned subsidiaries. India allows FDI through various modes and sectors to promote economic growth. While FDI has benefits like job creation and technology transfers, it also poses risks such as inflation and loss of policy flexibility. Overall, FDI has played an important role in India's development but more can still be done to spread its benefits across sectors and regions.

1. FOREIGN DIRECT INVESTMENTPrepared byRakeshRanjan Sahoo-138Chandra Sekhar Das-152Pratik Dasgupta-153Tonoy Banerjee-156Madhusudan Palo-177Farhanur Rahman-185

2. INTRODUCTIONForeign Direct Investment (FDI) is normally a form of investment made in order of long-lasting interest in enterprises that are operated outside of the economy .They are usually non volatile in nature.Preferred over other forms of external finance because they are non debt creating.Their returns usually depends on the performance of the project.

3. DEFINITIONAccording to world bank:“Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. This series shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign investors.”

4. Modes of FDI1) By Direction * Inward *Outward 2) By Target * Mergers and Acquisitions * Horizontal FDI * Vertical FDI (a) Backward Vertical FDI (b) Forward Vertical FDI 3 )By Motive * Resource-Seeking * Market-Seeking * Efficiency-Seeking 4/13/20114

5. FDI IN INDIA In India, Foreign Direct Investment Policy allows for investment only in case of the following form of investments:Through financial alliance ,Through joint schemes and technical alliance ,Through capital markets, Through private placements or preferential allotments .

6. Factors Affecting FDIFinancial incentives (Funds from local Government)Fiscal incentives (Exemption from import duties) Indirect incentives (Provides land and Political stability Market potential & accessibility Large economy Market size 4/13/20116

7. Why India?Liberal, largest democracy, Political Stability Second largest emerging market (US$ 2.4 trillion) Skilled and competitive labors force highest rates of return on investmentone hundred of the Fortune 500 have R & D facilities in IndiaSecond largest group of software developers after the U.S.lists 6,500 companies on the Bombay Stock Exchange (only the NYSE has more)4/13/20117

8. Why India (cont.)World's fourth largest economy & second largest pharmaceutical industrygrowth over the past few years averaging 8%has a middle class estimated at 300 million out of a total population of 1 billion Destination for business process outsourcing, Knowledge processing etc.Second largest English-speaking, scientific, technical and executive manpower Low costs & Tax exemptions in SEZTax incentives for IT , business process outsourcing and KPO companies4/13/20118

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10. Current ScenarioRanked 2nd most favored destination for foreign investments after China

11. India ranks among the top 12 producers of manufacturing value added (MVA).

12. In textiles, the country is ranked 4th after China, USA and Italy.

13. In electrical machinery and apparatus, it is ranked 5th. According to a United Nations Industrial Development Organization (UNIDO) analysis based on 2007 figures mentioned in the International Yearbook of Industrial Statistics 2009

14. Current Scenario6th position in the basic metals category

15. 6th position in space technology

16. 7th in chemicals and chemical products

17. 10th in leather, leather products, refined petroleum products and nuclear fuel

18. 12th in machinery and equipment and motor vehicles.According to a United Nations Industrial Development Organization (UNIDO) analysis based on 2007 figures mentioned in the International Yearbook of Industrial Statistics 2009

22. FDI In India Across Different SectorsHotel & Tourism- 100 per cent FDI is permitted for this sector through the automatic route.Trading- For trading companies 100 per cent FDI is allowed for Exports, Bulk Imports , Cash and Carry wholesale trading.Power- FDI allowed is upto 100%Drugs and pharmaceuticals- FDI is allowed upto 100% subject to the fact that the venture does not attract compulsory licensing, does not involve use of recombinant DNA technology.

23. Contd…Private banking- FDI of 49 per cent is allowed in the Banking sector through the automatic route provided the investment adheres to guidelines issued by RBI.Insurance sector- For the Insurance sector FDI allowed is 26 per cent through the automatic route on condition of getting license from Insurance Regulatory and Development Authority (IRDA).BPO- FDI of 100 per cent is permitted provided such investments satisfy certain prerequisites.NRI’S and OCB’S - They can have direct investment in industry, trade and infrastructure

24. Contd…Telecommunication- For basic, cellular, value added services and mobile personal communications by satellite, FDI is 49 per cent.For Internet Service Protocols with gateways, radio-paging and end to end bandwidth, FDI is allowed up to 74 per cent. But any FDI above 49 per cent would require government approval.

26. Sector-wise Distribution

28. why Services Sector ?Introduction of ‘Manmohanomics’ in 1991Liberalization of many service sectors activities (telecom, transport, finance etc.)One of the sector which got most reform benefits

29. FDI contribution to Services SectorAttracted $3.12 billion FDI in the first seven months of 2009-1022 per cent of the total FDI inflows of $17.64 billion in the April-October for service sectorIn 2008-09, attracted the maximum FDI worth USD 6.11 billion.

30. FDI Policy in Services Sector100% FDI is permitted for many service sectors (Real estate, construction, hotels, tourism, films, IT and IT - enabled services, consultancy, renting, medical, education, advertising etc)Phased manner: to allow domestic companies to prepare for global competition (Banking, Insurance, Media, organisedRetail Trade )

31. FICCI Study in Indian Manufacturing Sector: Salient Points

32. FICCI’s Suggestions

33. Restricted sectors in ServicesAtomic Energy, Lottery Business, Gambling and Betting, Business of Chit Fund, and any activity/sector that is not opened to private sector investment. Besides the above, FDI is not allowed in plantations.

34. IMPACT OF FDI IN INDIAEnabled India to achieve a high degree of growth and development.A number of projects have been announced in areas such as electricity generation, distribution and transmission, as well as the development of roads and highways, with opportunities for foreign investors.The Indian national government also provided permission to FDIs to provide up to 100% of the financing required for the construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores, approximately $352.5m.

35. FDI IN COMPARISON TO CHINA.FDI has helped the Indian economy grow, and the government continues to encourage more investments of this sort - but with $5.3 billion in FDI in 2004 India gets less than 10% of the FDI of China.By 2004, India received $5.3 billion in FDI, big growth compared to previous years, but less than 10% of the $60.6 billion that flowed into China.

36. Cont……Chinese approval process is complex, it includes both national and regional approval in the same process. Federal democracy is perversely an impediment for India. Local authorities are not part of the approvals process and have their own rights, and this often leads to projects getting bogged down in red tape and bureaucracy. India actually receives less than half the FDI that the federal government approves.

38. Share of countries

39. Role of FDI in economic growthHigher capital formation.Impetus to economic growth.Domestic labours.GovernmentExternal scale of economies.Tax revenue

40. FDI Benefits

41. ADVANTAGESInflow of exchanges.Transfer of technology.Reduction in poverty and unemployment.Easy capital formation.Higher revenue for government.Global exposure for local companies in case of joint venture.

42. DISADVANTAGESFluctuation in value of home currency.Environment and natural cost.Inflation .Greater competition for small and infant industriesCompromising with soveigernity .

43. FDI in India

44. Inflation Rate