Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Foreign Capital Flow

13,155 views

Published on

Study on FDI in India

Published in: Business, Economy & Finance
  • Hey Swapnil can you please send me this ppt at chadhaa62@gmail.com ?
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here

Foreign Capital Flow

  1. 1. FOREIGN CAPITAL FLOW In India Group 6 Sachin Arun Balaji Swapnil Arobinda
  2. 2. SCHEME OF PRESENTATION <ul><li>Introduction </li></ul><ul><li>Trends & Composition </li></ul><ul><li>Foreign Capital Flows </li></ul><ul><li>FDIs / FPIs / ECBs </li></ul><ul><li>Capital Account - Controls </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  3. 3. INTRODUCTION <ul><li>FCF in India comprises </li></ul><ul><ul><li>Foreign Direct Investment (FDI) </li></ul></ul><ul><ul><li>Foreign Portfolio Investment (FPI) </li></ul></ul><ul><ul><li>External Commercial Borrowings (ECB) </li></ul></ul><ul><ul><li>Non Resident Indian deposits (NRI) </li></ul></ul><ul><li>FCF in India – 3 Phases </li></ul><ul><ul><li>1 st Phase (till 1980s) – Restricted bilateral or multilateral aid finances </li></ul></ul><ul><ul><li>2 nd Phase (till 1991) – Includes S.T Loans , NRI Deposits </li></ul></ul><ul><ul><li>3 rd Phase (After 1991) – Balance of Payment Crisis </li></ul></ul><ul><ul><ul><li>Allowing FDIs </li></ul></ul></ul><ul><ul><ul><li>Portfolio Investment restricted to only Institutional Investors </li></ul></ul></ul><ul><ul><ul><li>Monitored ECBs </li></ul></ul></ul><ul><ul><ul><li>Generally FCF thro’ JVs and Wholly owned Subsidiary </li></ul></ul></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  4. 4. TREND & COMPOSITION 01 Jun 09 Group 6 - Business Environment : FCF in India
  5. 5. TRENDS & COMPOSITION <ul><li>Capital Inflows increase from 7% GDP in 1990 to 37% in 2007 </li></ul><ul><li>Capital Outflow increase from 5% GDP in 1990 to 27% in 2007 </li></ul><ul><li>Sustained Growth due to </li></ul><ul><ul><li>Good Domestic activity </li></ul></ul><ul><ul><li>Better Corporate Performance </li></ul></ul><ul><ul><li>Positive Investment Climate </li></ul></ul><ul><ul><li>Favorable Liquidity conditions </li></ul></ul><ul><ul><li>Global Interest rates </li></ul></ul><ul><li>Excess capital flow over and above current fiscal deficit, add up to foreign reserves </li></ul><ul><ul><li>As on July 2008, Foreign reserves of India are $308.4 billion </li></ul></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  6. 6. INTERNATIONAL INVESTMENT POSITION –DEC’08 01 Jun 09 Group 6 - Business Environment : FCF in India
  7. 7. COMPOSITION OF FCF 01 Jun 09 Group 6 - Business Environment : FCF in India
  8. 8. FOREIGN CAPITAL FLOW <ul><li>Need </li></ul><ul><li>Improvement of Economical infrastructure </li></ul><ul><li>Technological Up gradation </li></ul><ul><li>Managing Balance of Payments </li></ul><ul><li>Exploitation of Natural Resources </li></ul><ul><li>Scope of Employment </li></ul><ul><li>Improvement of export competitiveness </li></ul><ul><li>Benefit to consumers </li></ul><ul><li>Why in India? </li></ul><ul><li>Stabilized democratic government </li></ul><ul><li>Low penetrated market </li></ul><ul><li>Low labor cost </li></ul><ul><li>Skill population </li></ul><ul><li>Availability of resources </li></ul><ul><li>Supportive policies and rules </li></ul><ul><li>Very Low Yield in developed countries </li></ul><ul><li>Resilient Financial Sector </li></ul><ul><li>Improved financial performances of corporate </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  9. 9. F.C.F. ENTRY TO INDIA 01 Jun 09 Group 6 - Business Environment : FCF in India
  10. 10. FCF – ENTRY PROCESS 01 Jun 09 Group 6 - Business Environment : FCF in India Investing in India Automatic Route Prior Permission <ul><li>Inform RBI within 30 days of </li></ul><ul><li>inflow/issue of shares </li></ul><ul><li>Pricing: FEMA Regulations </li></ul><ul><ul><li>Unlisted – CCI </li></ul></ul><ul><ul><li>Listed – SEBI </li></ul></ul><ul><li>Cap of Rs. 600 Crore </li></ul><ul><ul><li>( approx SGD 222 million) </li></ul></ul><ul><li>Approval of Foreign Investment Promotion Board (FIPB) needed. </li></ul><ul><li>Decision generally within 4-6 weeks </li></ul>
  11. 11. FCF - AUTOMATIC ROUTE <ul><li>All items/activities for FDI investment up to 100% fall under the Automatic Route except the following: </li></ul><ul><ul><li>All proposals that require an Industrial License . </li></ul></ul><ul><ul><li>All proposals in which the foreign collaborator has a previous venture/ tie up in India. </li></ul></ul><ul><ul><li>All proposals relating to acquisition of existing shares in an existing Indian Company by a foreign investor. </li></ul></ul><ul><ul><li>All proposals falling outside notified sectoral policy/ caps or under sectors in which FDI is not permitted. </li></ul></ul><ul><li>Filing to be done by the Indian company </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  12. 12. FCF – FIPB ROUTE <ul><li>For all activities, which are not covered under the Automatic Route </li></ul><ul><li>Composite approvals involving foreign investment/ foreign technical collaboration </li></ul><ul><li>Published Transparent Guidelines vs. Earlier Case by Case Approach </li></ul><ul><li>Downstream Investment </li></ul><ul><li>Other Routes: </li></ul><ul><li>CCFI Route: </li></ul><ul><ul><li>Investment above the cost of Rs. 600 Crores </li></ul></ul><ul><ul><li>Prior Permission required from CCFI </li></ul></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  13. 13. FDI – FOREIGN DIRECT INVESTMENT <ul><li>What is a FDI? </li></ul><ul><li>FDI – a major non debt capital fund </li></ul><ul><li>Increase in FDI around 7 times since ’03 </li></ul><ul><li>2 types of FDI </li></ul><ul><ul><li>Mergers & Acquisition </li></ul></ul><ul><ul><li>Greenfield Investment </li></ul></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  14. 14. FDI - LIMITS <ul><li>Banking - 74% </li></ul><ul><li>Non-banking financial companies - 100% </li></ul><ul><li>Insurance - 26% </li></ul><ul><li>Telecommunications - 74% </li></ul><ul><li>Private petrol refining - 100% </li></ul><ul><li>Construction development - 100% </li></ul><ul><li>Coal & lignite - 74% </li></ul><ul><li>Trading - 51% </li></ul><ul><li>Electricity - 100% </li></ul><ul><li>Pharmaceuticals – 100% </li></ul><ul><li>Tourism - 100% </li></ul><ul><li>Mining - 74% </li></ul><ul><li>Advertising - 100% </li></ul><ul><li>Airports - 74% </li></ul><ul><li>Films - 100% </li></ul><ul><li>Domestic airlines - 49% </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India <ul><li>Exceptions: </li></ul><ul><li>Arms & Ammunition </li></ul><ul><li>Atomic Energy </li></ul><ul><li>Railway Transport </li></ul><ul><li>Gambling & Betting </li></ul><ul><li>Agriculture & Plantation (Certain) </li></ul>
  15. 15. FDI CONFIDENCE INDEX <ul><li>2002: India ranked 15 th </li></ul><ul><li>2003: India ranked 6 th (China, US, Mexico, Poland, Germany) </li></ul><ul><li>2004: China, US, India </li></ul><ul><li>2005 to 2009: China, India, US </li></ul><ul><li>2009: China, India, US, UK, Hong Kong, Brazil </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India Source: AT Kearney
  16. 16. FPI & ECB 01 Jun 09 Group 6 - Business Environment : FCF in India
  17. 17. FPI – FOREIGN PORTFOLIO INVESTMENT <ul><li>Investment by FIIs </li></ul><ul><li>GDRs / ADRs / FCCBs </li></ul><ul><li>Preference Shares </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  18. 18. FDI & FPI INFLOWS 01 Jun 09 Group 6 - Business Environment : FCF in India
  19. 19. ECB – EXTERNAL COMMERCIAL BORROWINGS <ul><li>Loans / Bonds issued outside India </li></ul><ul><li>Cap on Bond Ownership by FIIs - $2 million </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  20. 20. ECB – EXTERNAL COMMERCIAL BORROWINGS 01 Jun 09 Group 6 - Business Environment : FCF in India
  21. 21. 01 Jun 09 Group 6 - Business Environment : FCF in India MATRIX OF WELFARE OUTCOME FROM INVESTMENT INCENTIVE Group 6: Foreign Capital Flows Healthy competition Winners’ Curse Investment Poaching Beggar-thy-neighbour National Welfare Sub-national welfare Waste Gain Waste Gain
  22. 22. 01 Jun 09 Group 6 - Business Environment : FCF in India MANAGEMENT OF CAPITAL FLOWS <ul><li>Capital flows & exchange rate management </li></ul><ul><li>Capital flows & monetary management </li></ul><ul><ul><li>Capital flows & liquidity management </li></ul></ul><ul><ul><li>Cost of Sterilization </li></ul></ul><ul><li>Capital Account liberalization </li></ul>
  23. 23. CAPITAL ACCOUNT - CONTROLS <ul><li>Individuals limited to taking $50,000 per year </li></ul><ul><li>Firms – Capital equal to their net worth </li></ul><ul><li>ECBs – </li></ul><ul><ul><li>< $20 million – Maturity at least 3 yrs </li></ul></ul><ul><ul><li>> $20 million – Maturity at least 5 yrs </li></ul></ul><ul><li>Only FIIs are allowed to invest in India </li></ul><ul><li>FII in Govt bonds – max $2 billion </li></ul><ul><li>FIIs in corporate bonds – max $1.5 billion </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India
  24. 24. CONCLUSION <ul><li>Financial development can be best considered as a facilitator of economic growth </li></ul>01 Jun 09 Group 6 - Business Environment : FCF in India Thank You!

×