Foreign direct investment (FDI) involves a controlling ownership in a business by an entity based in another country. FDI brings funding and expertise from developed countries to help emerging markets expand. World FDI increased 9% to $1.45 trillion in 2013, with over half going to developing countries. FDI has advantages like increasing capital and job opportunities, but can also negatively impact local communities and allow foreign giants to take market share. While India is working to improve its regulatory environment and maximize stability to attract more FDI, it still faces challenges like resource and equity issues, political challenges, and reducing poverty.
2. FDI : An Introduction
What is FDI?
A foreign direct investment (FDI) is a controlling ownership in a
business enterprise in one country by an entity based in another
country.
Routes of FDI:
I. Automatic Route
II. Government Route
3. Why FDI?
FDI is of growing importance to global economic growth. In 2013,
world FDI increased by 9 per cent to $1.45 trillion.
This is especially important for developing and emerging market
countries. FDI from investors in developed areas like the European
Union (EU) and the United States provide funding and expertise to
help smaller companies in these emerging markets to expand and
increase international sales. In 2013, they received more than half (54
per cent) of total global FDI.
FDI is of growing importance to global economic growth. In 2013,
world FDI increased by 9 per cent to $1.45 trillion.
4. Advantages Of FDI
•Has many advantages for both the investor and the recipient.
•It allows money to freely go to whatever business has the best
prospects for growth anywhere in the world.
•This gives well-run businesses -- regardless of race, color or creed -
- a competitive advantage
•It can offset the volatility created by "hot money." Short-term
lenders and currency traders can create an asset bubble in a country
by investing lots of money in a short period of time, then selling
their investments just as quickly.
5. Disadvantages Of FDI
Too much foreign ownership of companies can be a concern,
especially in industries that are strategically important.
Second, sophisticated foreign investors can use their skills to strip
the company of its value without adding any. They can sell off
unprofitable portions of the company to local, less sophisticated
investors. Or, they can borrow against the company's collateral
locally, and lend the funds back to the parent company.
7. Impact Of FDI
Positive Impact:
•FDI would allow India to secure foreign infrastructure into India,
which would increase capital base rapidly.
•It created employment opportunities .
•Enable the delivery of affordable products to customers.
Negative Impact:
•It affect the local communities, when large projects come in.
•Improper time of allowing FDI in retail in India because of lack of
infrastructure
•Taking of revenue and market share by the big foreign giants
8. India is definitely a lucrative place for FDI, but there are certainly
some challenges and areas for improvement still present. Until, these
areas are honed to perfection, India will not become the number one
place for FDI.
India is focusing on maximizing political and social stability along
with a regulatory environment.
Challenges Of FDI
9. Challenges Of FDI
• Resource challenges
• Equity challenges
• Political challenges
• Federal challenges
• Challenge in reducing poverty
In spite of the obvious advantages of FDIs, there are quite a few
challenges facing larger FDIs in India, such as:
10. FDI in India
49% : Defense
49% : Insurance
49% : Petroleum refining
49% : Stock exchange, depositories
51% : Multi brand retiling
74% : Private sector branding
74% : Atomic minerals
100% : Single brand retailing
100% : Railways
India had opened up its economy and allowed MNCs in the core sectors
such as power and fuels, electrical equipments, transport, chemicals,
food processing, pharmaceuticals etc Foreign Investment was
introduced in 1991 under foreign Exchange Management Act (FEMA),
driven by then finance minister Manmohan Singh.
11. Regulatory framework of FDI
• Selective approach on foreign equity
participation
• Regulated by FERA, 1973
• FIPB
• FIPC
FERA empowered RBI to regulate or exercise direct control over the activities of foreign companies and foreign nationals in India.
Foreign company is defined as one (except banking) which was not incorporated in india or in which non-resident interest is more than 40%