Implementation of FDI for Business

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2. Implementation of FDI for Business
By :-
LOKESH CHANDRA
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3. What is FDI ?
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• Foreign direct investment (FDI) is a direct investment
into production or business in a country by an individual or
company of another country, either by buying a company in
the target country or by expanding operations of an existing
business in that country.
• Foreign direct investment is in contrast to portfolio
investment which is a passive investment in the securities
of another country such as stocks and bonds.

4. Why FDI?
 No debt creation on the part of the government.
 Triggers technology transfer.
 Contributes to international integration by promoting exports.
 Increases productivity and competitiveness.
 Improves efficiency of resources.
 Promotes innovation.
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5. Drawbacks of FDI
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 Local firms may loose business because of the oligopolistic
power of foreign firms.
 The repatriation of profit may drain out the capital of the
host country.
 Local population may be displaced out of their jobs if they
are unable to cope with the technologically advanced
foreign firms.

6. Studies on FDI in India
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 Higher extent of FDI in an industry leads to higher
wage rate, it has no impact on its employment.
 Higher export intensity of an industry increases
employment in the industry but has no effect on its
wage rate.
 Import of technology has unfavorably affected
employment in India. The study by Sharma (2000)
concluded that FDI does not have a statistically
significant role in the export promotion in Indian
Economy.

7. FDI policy in India
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 Currently FDI is permitted through:-
a) Financial collaborations.
b) Joint Ventures and technical collaborations.
c) Capital markets via Euro issues.
d) Preferential allotments.
 India had opened up its economy and allowed MNCs in the
core sectors such as Power and Fuels, Electrical Equipments,
Transport, Chemicals, Food Processing, Metallurgical, Drugs
and Pharmaceuticals, Textiles, and Industrial Machinery.

8. Currently FDI is allowed in
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 Telecommunications, Banking, Insurance, Hotel &
Tourism, IT.
 Mining of titanium keeping India's civilian nuclear
ambitions in mind upto100%,a mineral which is
abundant in India.
 Single Brand product retailing where Foreign Investment
up to 51% is permitted with prior Government approval.
Major debate going on about approving FDI in India’s
Retail sector.

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Continue…
 India had registered a declining trend of FDI inflows and
the FDI- GDP ratio especially in 1998 and 2003 could be
attributed to many factors, including the US sanctions
imposed in the aftermath of the nuclear tests and Swadesi
movements.
 But since 2006 India has seen a remarkably higher
growth of FDI in accordance with the general trends of
the global economy with a slight dip in the year 2009-
2010.

10. Top Investors in India
42
9
7
5
4 4 4
2 2
19
45
40
35
30
25
20
15
10
5
0
Mauritius
Singapore
U.S.A.
U.K
Netherlands
Japan
Cyprus
Germany
France
Others
%age to total Inflows (in terms of US $)
%
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11. Telecommunication Sector -
A success story
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 Large number of private operators started operating in
the basic/mobile telephony and Internet domains after
several series of reforms in the telecom sector. FDI is
permitted up to 74% with FDI, beyond 49% requiring
Government approval.
 As a result of the New Telecom Policy 1999 (NTP99)
Total FDI in telecom is currently over US $ 15 billion.
 Tremendous improvement in infrastructure, lowest tariff
rates in the world and over 250 million users.
 In 2007-2008 Vodafone took over Hutch for about US $
11 billion.

12. Retail Sector in India
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 Retail industry in India is one of the fastest growing.
 Contributes 14% to the national GDP and employs 7% of the
total workforce.
 The retail industry is divided into organized and unorganized
sectors.
 Organized trade employs roughly 5 lakhs people whereas the
unorganized retail trade employs nearly 3.95 crore.
 Growth in Retail as a result of economic expansion as well as
jobless growth.

13. Major arguments against adoption of
FDI in Retail in India:
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 FDI driven modern retailing is labor displacing.
 It can only expand by destroying the traditional retail
sector.
 Foreign retail firms have deep pockets and can cause
even the organized retail sector to go out of business.
 Will buy big from India and abroad and be able to
sell low. When monopoly situation is created will buy
low and sell high.

14. Suggestive measures to eliminate the
negative effects of FDI in Retail
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 FDI should be aggressively promoted in R&D,
Manufacturing, Entertainment to accommodate the
people who have lost their jobs.
 Import duty should be imposed to protect domestic
production units.
 Labour laws should be imposed to ensure that no
management jobs are outsourced.
 Jobs should be reserved for the poor people.

15. References of the Data
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 http://en.wikipedia.org/wiki/Foreign_direct_investment
 http://www.sharetipsinfo.com/fdi-retail.html
 http://en.wikipedia.org/wiki/Retailing_in_India
 http://toostep.com/debate/what-is-impact-of-fdi-in-indian-market

16. Conclusion
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