2. FOREIGN DIRECT INVESTMENT
A Foreign direct investment (FDI) is a controlling
ownership in a business enterprise in one country
by an entity based in another country.
It is direct investment of company in production
located in another country either by buying a
company in the country or by expanding operations
of an existing business in the country.
3. WHY FDI ?!?
To take advantages of cheaper wages in the
country.
Special investment privilege such as tax
exemptions offered by the country.
To gain tariff-free access to the markets of the
country or the region.
4. TYPES OF FDI
Horizontal FDI arises when a firm duplicates its
home country-based activities at the same value
chain stage in a host country through FDI.
Platform FDI Foreign direct investment from a
source country into a destination country for the
purpose of exporting to a third country.
Vertical FDI takes place when a firm through FDI
moves upstream or downstream in different value
chains i.e., when firms perform value-adding
activities stage by stage in a vertical fashion in a
host country.
5. REGULATED BY
Reserve bank of india
FIPB ( foreign investment promotion board) of the
department of commerce under ministry of finance.
6. ADVANTAGES AND DISADVANTAGES
Inflow of equipment and
technology.
competitive advantage and
innovation.
Financial resources for
expansion.
Employment generation.
Contribution to exports to
growth.
Improved consumer welfare
through reduced cost, wider
choice & improved quality.
Crowding of local industry.
Conflicts of laws.
Loss of control.
Effect on natural
environment.
Effect on local culture.
Advantages Disadvantages
7. FDI IN INDIA
Foreign investment was introduced in 1991 under Foreign
Exchange Management Act (FEMA), driven by then finance
minister Manmohan Singh.
India is not a country but a real subcontinent: 22 official
languages, 28 states (and seven territorial unions), more than
five religions … there is a great diversity that makes the
country complex to understand.
Economically, India is an attractive country with a GDP
of 1946.77 billion dollars in 2013, and ranks among the top
three of the Asian power after China and Japan, and eighth in
the world.
The country has recorded strong growth the last ten years,
thanks to the liberalization of its economy in 1991, even if it
begins to decline (5.3% in 2011 against 8-10% in the 2000s).
8. WHY DO WE NEED IT
We are second highest producer of fruits and
vegetables in the world but still we are not able to
utilize it properly because of inadequate
infrastructure facilities.
It will reduce pre-harvest wastage and thus helps to
control the food inflation.
It will create 1.5 million jobs in five years and the
huge no. of indirect employment also.
It will remove middleman from the equation. It will
reduce cost which turns to reduce prices.
9. …
Foreign investments are allowed to detain 100% of the capital
in some sectors such as IT services, automotive industry,
hospitality …This helped to boost the country by creating jobs,
develop infrastructure and to foreign companies to benefit: the
Indian labor quality and at a lower cost, access to an unlimited
resources (50% of the population is under 25 years).
However, FDI is limited in other sectors such as in the retail
market, where the company has sometimes no other choice
than to associate with an Indian partner to enter in the market.
Today India is at the 14th position in the world ranking of FDI
receiving countries.
By its population, the country attracted many investors but the
crisis has slowed it. Cases of corruption and “political
paralysis” have also contributed to the decline until 2011. But
FDI started to increase in 2013 thanks to the measures taken
by the government (retail sector).
10. SOURCE: OFFICE OF THE ECONOMIC ADVISOR, DIPP.
NOTE: TOTAL EXCLUDES INFLOWS TO THE SERVICES SECTOR AND OTHER NON-RESIDENT INDIAN (NRI) SCHEMES.
*INCLUDES NON-CONVENTIONAL ENERGY
During April-November 2012-13, FDI inflow (including equity
inflows, reinvested earnings and other capital) was US$ 24.65
billion. FDI equity inflows were US$ 15.85 billion showing a
decline of 43 percent as compared to the corresponding
period of the previous year.
Cumulative FDI inflow from April 2000 to November 2012
stood at US$ 277.86 billion.
During April-October 2012, services, hotels and tourism,
metallurgical industries, automobile industry, construction,
drugs and pharmaceuticals, industrial machinery were the
sectors that attracted maximum FDI inflows.
The United Nations Conference on Trade and Development
(UNCTAD) World Investment Report, 2012 in its analysis of
the global trends and sustained growth of FDI inflows
continues to report India as the third most attractive location
for 2012-14.
11. SOURCE: OFFICE OF THE ECONOMIC ADVISOR, DIPP.
NOTE: TOTAL EXCLUDES INFLOWS TO THE SERVICES SECTOR AND OTHER NON-RESIDENT INDIAN (NRI) SCHEMES.
*INCLUDES NON-CONVENTIONAL ENERGY
The finance ministry said India received $19.52 billion in FDI
from 1999 to 2004. This increased to $114.55 billion in the
period between 2004 and 2009 and climbed another $172.82
billion by September last year.
According to the report, FDI flowing into India rose 17% to $28
billion in 2013. But the country’s ranking based on the FDI
received during the year slipped one notch to 16th position.
China retained its rank and number two, bagging a far higher
$127 billion in FDI during the year.
13. …
Mauritius is the country that invests the more in India (38%),
mainly in the oil, telecommunications or electric sectors. The
United States formerly invested heavily in the
country, especially in the service sector (call centers, data
entry …) but it decreases in favor of others emerging
countries such as Philippines or Vietnam.
Thus India is facing the same situation as China a few years
ago, when foreign investors relocated their activities in
countries where the labor is cheaper. Indeed FDI allowed
China to grow massively and increase the standard of living of
the population (through higher wages).
India is rivaled by the Asia Pacific countries, especially in the
service sector and IT.
However, the services sector still represents the 1st sector of
FDI (2012),
16. Sector/Activity
Before the proposal After the proposal
% of FDI /Equity Entry Route % of FDI / Equity Entry Route
Defence Sector 26% Government Route 49%
Higher limits of foreign
investment in "stateof-the-
art" manufacturing would be
considered by the CCS
Insurance Sector 26% Automatic Route 49% Automatic Route
Telecom Services 74%
Automatic up to 49%
Government route
beyond 49% and up to
74%
100%
Automatic up to 49%
Government route beyond
49% and up to 100%
Tea Plantation 100% Government Route 100%
Automatic up to 49%
Government route beyond
49% and up to 100%
17. Asset Reconstruction Company
74% of paid-up capital of
ARC (FDI+FII)
Government Route 100%
Automatic up to 49%
Government route beyond 49%
and up to 100%
Petroleum & Natural Gas 49% Government Route 49% Automatic Route
Commodity Exchanges
49% (FDI & FII) +
[Investment by Registered
FII under Portfolio
Investment Scheme (PIS)
will be limited to 23% and
Investment under FDI
Scheme limited to 26% ]
Government Route (For
FDI)
49% Automatic Route
Power Exchanges
49% (FDI &FII) FDI limit of
26 per cent and an FII limit
of 23 per cent of the
paidup capital
Government Route (For
FDI)
49% Automatic Route
18. Stock Exchanges/
ClearingCorporations
49% (FDI &FII) FDI limit
of 26 per cent and an
FII limit of 23 per cent
of the paid-up capital
Government Route(For
FDI)
49% Automatic Route
Credit Information Companies 49% (FDI & FII) Government Route 74% Automatic Route
Courier Services 100% Government Route 100% Automatic Route
Single Brand product retail trading 100% Government Route 100%
Automatic up to 49%
Government route beyond
49% and up to 100%
19. FDI is prohibited under the Government Route as well as the
Automatic Route in the following sectors:
i) Atomic Energy
ii) Lottery Business
iii) Gambling and Betting
iv) Business of Chit Fund
v) Nidhi Company
vi) Agricultural (excluding Floriculture, Horticulture, Development
of seeds, Animal Husbandry, Pisciculture and cultivation of
vegetables, mushrooms, etc. under controlled conditions and
services related to agro and allied sectors) and Plantations
activities (other than Tea Plantations) (c.f. Notification No. FEMA
94/2003-RB dated June 18, 2003).
vii) Housing and Real Estate business (except development of
townships, construction of residential/commercial premises,
roads or bridges to the extent specified in Notification No. FEMA
136/2005-RB dated July 19, 2005).
viii) Trading in Transferable Development Rights (TDRs).
ix) Manufacture of cigars, cheroots, cigarillos and cigarettes, of
tobacco or of tobacco substitutes.
20. …
Despite the competition, investors still have confidence in India
by its expertise and its strong system, which inspired the
Filipinos.
India has thus gradually open to foreign investors since 1991.
Unlike the sectors of IT, hospitality, energy or pharmaceutical,
many sectors are limited to India:
– Insurance Sector: allowed to detain 26% of the capital by
foreigners
– Banking: 49%
– Military: banned
So many companies wanting to establish themselves in India has
to alliance with a local firm to enter in the country.
It may well include:
– The joint venture between Wal-Mart and Bharti,
– The alliance between Renault and Mahindra in 2005 at the
entrance of the French company in India for the production and
the commercialization of the Logan (although the automotive
sector is open at 100%).
Recently (end of 2012) the airport (100%) and retail sectors are
open to foreign investors. This has led to numerous protests in
the country, including farmers and owners of small shops.
21. The economic liberalisation in India refers to ongoing economic reforms
in India that started on 24 July 1991. After Independence in 1947, India
adhered to socialist policies. Attempts were made to liberalize economy
in 1966 and 1985. The first attempt was reversed in 1967. Thereafter, a
stronger version of socialism was adopted. Second major attempt was
in 1985 by Prime Minister Rajiv Gandhi. The process came to a halt in
1987, though 1966 style reversal did not take place. In 1991, after India
faced a balance of payments crisis, it had to pledge 20 tons of gold to
Union Bank of Switzerland and 47 tons to Bank of England as part of a
bailout deal with the International Monetary Fund (IMF). In addition, the
IMF required India to undertake a series of structural economic reforms.
As a result of this requirement, the government of P. V. Narasimha Rao
and his finance minister Manmohan Singh (currently the Prime Minister
of India) started breakthrough reforms, although they did not implement
many of the reforms the IMF wanted. The new neo-liberal policies
included opening for international trade and investment, deregulation,
initiation of privatization, tax reforms, and inflation-controlling measures.
The overall direction of liberalisation has since remained the same,
irrespective of the ruling party, although no party has yet tried to take on
powerful lobbies such as the trade unions and farmers, or contentious
issues such as reforming labour laws and reducing agricultural
subsidies.Thus, unlike the reforms of 1966 and 1985 that were carried
out by the majority Congress governments, the reforms of 1991 carried
out by a minority government proved sustainable.
23. FDI IN UNION BUDGET 2014
Senior government officials told TOI that the department of
industrial policy and promotion, which had proposed a graded
regime in regime that allowed 74% FDI if a foreign investor
transferred technology and 100% for state-of-the-art
equipment is now willing to lower the bar a little. So, a fresh
plan that seeks to increase the ceiling from 26% to 49% for
cases without transfer of technology and 51% with technology
transfer is being discussed.
The dilution in stance follows defence ministry's reluctance for
a ceiling beyond 49%, a position which is also held by several
large Indian corporate houses such as Larsen & Toubro and
Bharat Forge. L&T has gone public with its stance against
allowing foreign investors to hold over 49% in Indian defence
ventures.
