FDI and FII in India can contribute to economic growth. FDI refers to investment from foreign companies that have control over local firms. FII refers to investments from institutional investors in foreign stock markets. Key differences are that FDI goes to primary markets while FII goes to secondary markets, and FDI is generally longer term while FII is shorter term and more liquid. Factors affecting FDI include wages, infrastructure, economic growth potential, and political stability. India has increasingly liberalized and now allows FDI in many industries like infrastructure, IT, automobiles and more. FDI can promote industrialization, technology, jobs and exports but also risks unbalanced development and monopolies. FIIs have invested over $171

1. FDI and FII in India:
Do they really contribute to Economic Growth?
BM – A Group – 5
B19008 Anuja Rai
B19023 Kondapuram Vamsi Krishna
B19028 Munugoti Anurag Sharma
B19036 Ramapriyan S V

2. FDI vs FII
FDI
Investment in a business by an
investor from another country
for which the foreign investor
has control over the company
purchased.
FII
• Institutional investors which
invest in the assets belonging
to a different country other
than that where these
organizations are based.
Key differences:
• FDI is an investment that a parent company makes in a foreign country. On the contrary, FII is an
investment made by an investor in the markets of a foreign nation
• The FDI flows into the primary market, while the FII flows into secondary market
• While FIIs are short-term investments, the FDIs are long term investment
• FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that
easily
• The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor

3. Factors affecting
FDI
• Wage rates
• Labour skills
• Tax rates
• Transport and infrastructure
• Size of economy / potential for growth
• Political stability / property rights
• Commodities
• Exchange rate
• Clustering effects
• Access to free trade areas
FII
• Growth opportunity in domestic country of FII
• Bureaucracy in Economy
• Other developing (competitor) countries
• Interest rate in FII’s domestic country
• Inflation
• Issues related to origin country of FII
• Initiatives of new government
• Current burnings issues related to Indian Economy
• Tax structure

4. FDI

5. Phases of FDI
• Phase 1: (1948-1967) Phase of cautious and selective attitude
towards FDI
• Phase 2: (1968-1979) Phase of restrictive attitude towards FDI
• Phase 3: (1980-1990) Phase of semi-liberalization
• Phase 4: (post 1991) Phase of liberalization
FDI permitted industries:
Cigar and cigarettes of tobacco
Coal, roads and highways
Diamond, gold, silver, minerals
Electricity
Hotels, hospitals
Retail
IT
Oil and energy
Power sector
Pharma and chemicals
Real estate
Mobile sector
Automobile
Telecommunication

6. Why is it important ?
Provides a source of new technologies, capital, processes,
products, organizational technologies which are all a strong
impetus to economic development
Helps in circumventing trade barriers, hidden and otherwise
Provides an opportunity for co-production, joint ventures with
local partners, joint marketing arrangements, liscensing etc.

7. FDI trends in India
• Apart from being a critical driver of economic
growth, FDI is a major source of non-debt financial
resource for the economic development of India
• The Indian government’s favourable policy regime
and robust business environment have ensured that
foreign capital keeps flowing into the country
• Huge inflow of FDI is seen in sectors such as
defence, PSU oil refineries, telecom, power
exchanges, and stock exchanges, among others

8. Routes of entry
Foreign Investment
Government/Approval
Route
Investment in
restricted activities
Investment exceeding
sectoral caps
Automatic Route
Investment in
downstream
subsidiaries

9. FDI – pros and cons
Pros
• Industrial development
• Advancement of technology
• Generation of employment
• Increase in the export
• Import substitution
Cons
• Threat to the small and medium industries
• Unbalanced development of country
• Fear of establishment of monopoly
• Disincentive to the development of indigenous
technology

10. Impact of FDI on various things

11. FII

12. Some historical and current data of FII in India
• Foreign Portfolio/Institutional Investors (FPI/FII) have been one of the biggest
drivers of India’s financial markets and have invested around Rs 12.51 trillion
(US$ 171.81 billion) in India between FY02-18
• Highly developed primary and secondary markets have attracted FIIs/FPIs to the
country
• Investments by FIIs/FPIs in India are regulated by the SEBI while the ceilings on
such investments are maintained by the RBI
Types of FII investments in India:
• Hedge Funds
• Foreign Mutual Funds
• Sovereign Wealth Funds
• Pension Funds
• Trusts
• Asset management Companies
• Endowments, University Funds, etc.

13. Eligibility
• The applicant is required to have the permission under the provisions of the Foreign Exchange Management
Act, 1999 from the Reserve Bank of India
• Applicant must be legally permitted to invest in securities outside the country or its in-
corporation/establishment
• The applicant must be a “fit and proper” person
• The applicant has to appoint a local custodian and enter into an agreement with the custodian. Besides it also
has to appoint ta designated bank to route its transactions
• Payment of registration fee of USD 5000
Interested in…
Projects with good NPV
Demand potential
Revenue potential
Stable policy and environmental/political commitment
Optimal risk allocation framework

14. Where can FII invest and tax structure
• Securities in primary and secondary markets including shares, debentures and warrants of companies,
unlisted, listed or to be listed on a recognized stock exchange in India
• Units of mutual funds
• Dated Govt. Securities
• Derivatives traded on a recognized stock exchange
• Commercial papers
Short term capital gain – 30%
Long term capital gain – 10%
Interest income – 20%
Taxation

15. Need of FII
Supplements and augments domestic savings and investment without increasing the foreign debt of the
country
Capital inflows into equity market increase stock prices, lower the cost of equity capital and encourage the
investment by Indian firms
Helps in financial innovation and development of hedging instruments
Helps in managing and controlling uncertainity

16. Impact:
In the past four years there has been more than $41 billion worth of funds invested in India
This has been one of the major reason behind the growth of BSE Sensex by 221% in the same period
The present downfall of the market is also influenced by these FIIs as they are taking out some of their
invested money
Impact on volatility of markets:
The increase in investment by FIIs increase the stock indices and these further
encourages investments. In this event when any correction takes place the stock prices
decline and there will be a pull out by FIIs in a large number causing volatility
They also manipulate the situation of boom in such a manner that they wait till the
index rises up to a certain height and exit at an approximate time. This tendency
increases the volatility further.

17. Source: NSDL

18. THANK YOU!