Capital inflows

1. Capital Inflows
Yashavantha G Nayak
Assistant Professor
St Philomena College Puttur

2. The Indian economy has several challenges to enhance the
Indian currency against the other currencies particularly US
dollar, rulers introduce many schemes, programmes and
policies to attract foreign capital into the country.

3. • The various forms of capital inflows:
• Foreign direct investment: FDI refers to investment in a
foreign country where the investor retains control over the
investment.
• FDI may take the form of :
• a) Green-field investment:
• Establishing an entirely new enterprise in the foreign market.
• b) Mergers
• c) Acquistions

4. • FII–foreign institutional investors
The Indian stock market was opened up to FII investment
in 1992-93 and since then there has been a significant
increase in the portfolio investment by FIIs.The regulations
on Foreign Institutional Investors, which were notified on
November 14, 1995,contains various provisions relating to
definition of FIIs, eligibility criteria, Investment
restrictions, procedures of registration and general
obligations and responsibilities of FIIs.

5. According to the regulations, FII may invest only in:
a) Securities in the primary and secondary markets
including shares, debentures of Companies listed on a
recognised stock exchange in India, and (b) Units of
schemes floated by domestic mutual funds including
Unit Trust Of India,whether listed on a recognised stock
exchange or not.

6. FIIs are permitted to invest in a company upto an aggregate of 24 percent of
equity, which can be increased to 40 percent subject to approval by the
Board Of Directors and a Special Resolution of the General Body.

7. Difference between FDI and FII?
FDI is preferred over FII investments since it is considered to be the most beneficial form
of foreign investment for the economy as a whole. Direct investment targets a specific
enterprise, with the aim of increasing its capacity/productivity or changing its management
control.

8. Direct investment to create or augment capacity ensures that the capital inflow
translates into additional production. In the case of FII investment that
flows into the secondary market, the effect is to increase capital availability
in general , rather than availability of capital to a particular enterprise.

9. Turnkey project
A Turnkey project is a contract under which a firm agrees to fully design,
construct and equip a manufacturing /business /service facility and turn the
project over to the purchaser when it is ready for operation for a
remuneration.

10. Joint ventures
Two or more firms join together to create a new business entity that is legally
separate and distinct from its parents.

11. Barriers of Capital Inflows
Exchange control restrictions
Exchange rate fluctuations
Tax system
Restrictions of funds in different sector
Political risk

12. Thank You