1) Foreign direct investment and foreign institutional investment are both types of cross-border investment but differ in nature. While FDI involves direct ownership in a business located in another country, FII refers to foreign investment in the stock markets of another country. 2) FDI provides greater control rights and is a longer term commitment, whereas FII is more short-term in nature and does not provide control over operations. 3) Both FDI and FII can provide benefits like increased capital flows and investment, but FII is more prone to being "hot money" that leaves quickly.

1. -Jonty Mohta
IIPM- Ahmedabad
(UGP/09-12)

2. GDP (IN Rs crore)
GDP (IN Rs crore)
6164178
5574449
4947857
4283979
3706473
3239224
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

3. GDP Growth Rate (in %)
9.5 9.7
9.2
6.9 7.2
6.7
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

4. Chart Title
Inflation (WPI) Inflation (CPI )
11.4
9.1
8.4
6.5 6.7 6.2
5.4
4.4 4.4 4.7
3.8
1.6
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

5. Chart Title
Exports (US$ Mn.) Imports (US$ Mn.)
307651
257629
190670 189001 193820
157056 166162
118908105152 128888 117580
85,206
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

6. Trade Balance (US$ Mn.)
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
-20000
-40000
-60000
Trade Balance (US$ Mn.)
-80000
-100000
-120000
-140000

7. 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
India.

8. 1) By Direction
 Inward
 Outward
2) By Target
 Mergers and Acquisitions
 Horizontal FDI
 Vertical FDI
3 )By Motive
 Resource-Seeking
 Market-Seeking
 Efficiency-Seeking

9. 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
dt.19/12/2007)
To Citizens & Entities of Bangladesh

10.  Financial incentives (Funds from local Government)
 Fiscal incentives (Exemption from import duties)
 Indirect incentives (Provides land and other resources)
 Political stability
 Market potential & accessibility
 Large economy
 Market size

11. FDI
Amount in US bn $ %age growth over
29.89
27.92
22.08
8.96
6.13 6.05
4.03 5.04 4.32
52.10% 146.40%
40.00%48.10% 35.40%
FY 2001 FY 2002
-17.90% 2004 FY 2005
FY 2003
-14.20%
FY FY 2006 FY 2007 FY 2008 FY 2009 (till
dec.)

12. Rank Country Total 2000 to % of
2009 Total of all
Countries
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

13. CONTRIBUTION IN FDI (in %)
MAURITIUS SINGAPORE U.S.A.
U.K. JAPAN NETHERLANDS
CYPRUS OTHERS
22%
44%
4%
4% 4%
5%
8% 9%

14. Investing in India – Entry Routes
Investing in India
Prior Permission
Automatic Route
(FIPB)
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

15. Sector/Activity FDI Cap/Equity Entry Route
Airports 100% Automatic
Construction
100% Automatic
Development
Petroleum & Natural
Gas
26% (For PSUs) FIPB
(b) Refining 100% ( Private Automatic
companies)
Other than Refining 100% Automatic
Telecommunication
Basic and 74% Automatic up to 49%
cellular;STD/ISD
Manufacture of telecom
100% Automatic
equipment
Power ( Except Atomic
energy); regulations
transmission,
distribution and Power

16. Ranks Sector 2006- 2007- 2007- 2007- Cum % of
Inflows
07 08 08 08 Till
total
(Apr- (Apr- (Apr- (Apr- Nov09 Inflows
Mar) Mar) Mar) Mar)
1. SERVICES 21,047 26,589 28,411 16,566 101,019 22 %
SECTOR (4,664) (6,615) (6,116) (3,438) (22,687)
(fin& non-
financial)
2. COMPUT. 11,786 5,623 7,329 2,763 42,259 9%
SOFT & (2,614) (1,410) (1,677) (575) (9,529)
HARD.
3. TELE 2,155 5,103 11,727 10,811 39,179 8%
COMMUN (478) (1,261) (2,558) (2,223) (8,600)
ICATIONS
4. HOUSING 2,121 8,749 12,621 10,565 34,348 7%
& REAL (467) (2,179) (2,801) (2,189) (7,701)
ESTATE
5. CONSTRU 4,424 6,989 8,792 8,380 30,557 7%
CTION (985) (1,743) (2,028) (1,754) (6,945)
(inroads &

17.  Economic growth
 Trade
 Employment and skill levels
 Technology diffusion and knowledge transfer
 Linkages and spillover to domestic firms
 Improved technology.
 Management expertise.
 Access to international markets

18.  Gambling and betting
 Lottery Business
 Atomic Energy
 Retail Trading
 Agricultural or plantation activities of
Agriculture
(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)

19.  An investor or investment fund that is from or
registered in a country outside of the one in which it is
currently investing.
Institutional investors include
 hedge funds,
 insurance companies,
 pension funds and mutual funds.

20. Pension Funds
Mutual Funds
Insurance Companies
Investment Trusts
Banks
Endowments
Foundations
Charitable Trusts / Charitable Societies

21. Applicant’s track record, professional competence, financial
soundness, experience,
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.

23. Chart Title
100000
80000
60000
40000
Axis Title
YEAR
20000
FII in Rs Cr.
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
-20000
-40000
-60000

24. 25000
20000
15000
FII
10000
5000
Sensex
0
-5000
Exchange Ra
-10000
-15000

25. 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.

26.  Unavailability of Corporate  Problem of inflation
Debt  Reduces flexibility of Policy
makers
 Increase Forex Reserve
 Hot Money
 Increase Domestic Savings
 False representation of
and Investments
Economy
Large Availability of Capital  Can’t be used for long term
Advantages Disadvantages
 Problems for small investors

27.  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.
facility.
 FDI gives some CONTROL in  FII does not give any
operation of foreign company control in operation of
FDI FII
to the foreign company foreign company

28.  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
capital. capital.
FDI FII

29.  www.ibef.org
 www.imf.org
 www.rbi.org.in
 www.tradechakra.com
 www.tradingeconomy.com