PRESENTED BYNEHA CHAUHAN

&BUNTY SEHDEV

MEANING OF FDIThe Foreign Direct Investment means “cross border investment made by a resident in one economy  in an enterprise in another economy, with the objective of establishing a lasting interest  in  the investee economy.  FDI is also described as   “investment into the business of  a country by a company in another country”.   Mostly the investment is into production  by either  buying a company in the target country or by expanding operations of an existing business in that country”.    Such investments can  take place  for many reasons,  including to take advantage of cheaper wages, special investment privileges  (e.g. tax exemptions) offered  by the country. 

Domestic capital is inadequate for purpose of economic growth;

Foreign capital is usually essential, at least as a temporary measure, during the period when the capital market is in the process of development;

Foreign capital usually brings it with other scarce productive factors like technical know how,  business expertise and knowledge

Why Countries Seek FDI ?

(a)   Improves forex position of the country;(b) Employment generation and increase in

production ;(c)   Help in capital formation by bringing fresh

capital;(d)  Helps in transfer of new technologies,

management skills, intellectual property(e)  Increases competition within the local

market and this brings higher efficiencies(f)    Helps in increasing exports;(g)   Increases tax revenues

What are the major benefits of FDI

  Domestic companies fear that they may lose their ownership to overseas company

 Small enterprises fear that they may not be able to compete with world class large companies and may ultimately be edged out of business;

    Large giants of the world try to monopolise and take over the highly profitable sectors;

   Such foreign companies invest more in machinery and intellectual property than in wages of the local people;

   Government has less control over the functioning of such companies as they usually work as wholly owned subsidiary of an overseas company;

Why FDI is Opposed by Local People or Disadvantages of FDI :

India is the 3rd largest economy of the world in terms of purchasing power parity and thus looks attractive to the world for FDI.

Some of the major economic sectors where India can attract investment are as follows:-

Telecommunications Apparels Information Technology Pharmacy Auto parts Jewellery Chemicals

Scope of FDI in India

Automatic Route FDI is allowed under

the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.

Government Route FDI in activities not

covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance.

 Procedure for receiving Foreign Direct Investment

 Foreign Investment Promotion Board (popularly known as FIPB) : The Board is responsible for expeditious clearance of FDI proposals and review of the implementation of cleared proposals.  It also undertake investment promotion activities and issue and review general and sectoral policy guidelines;

Secretariat for Industrial Assistance (SIA) : It acts as a gateway to industrial investment in India and assists the entrepreneurs and investors in setting  up projects.  SIA also liaison with other government bodies to ensure necessary clearances;

 Foreign Investment Implementation Authority (FIIA) :  The authority works for quick implementation of FDI approvals and resolution of operational difficulties faced by foreign investors;

 Investment Commission  Project Approval Board Reserve Bank of India

 Authorities Dealing With Foreign Investment:

• FDI cap in telecom raised to 100 percent from 74 percent; up to 49 percent through automatic route and beyond via FIPB.

• No change in 49 percent FDI limit in civil aviation. • FDI cap in defence production to stay at 26 percent, higher

investment may be considered in state-of-the-art technology production by Cabinet Committee on Security (CCS).

• 100 percent FDI allowed in single brand retail; 49 percent through automatic, 49-100 percent through FIPB.

• FDI limit in insurance sector raised to 49 percent from present 26 percent, subject to Parliament approval.

• FDI up to 49 percent in petroleum refining allowed under automatic route, from earlier approval route.

• In power exchanges 49 percent FDI allowed through automatic route, from earlier FIPB route.

Govt decision on FDI in 13 sectors

• Raised FDI in asset reconstruction companies to 100 percent from 74 percent; of this up to 49 percent will be under automatic route.

• FDI limit increased in credit information companies to 74 percent from 49 percent.

• FDI up to 49 percent in stock exchanges, depositories allowed under automatic route.

• FDI up to 100 percent through automatic route allowed in courier services.

• FDI in tea plantation up to 49 percent through automatic route; 49-100 percent through FIPB route.

• No decision taken on FDI cap in airports, media, brown field pharmacy and multi-brand retail.

Atomic Energy Lottery Business Gambling and Betting Business of Chit Fund 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)

Housing and Real Estate business (except development of townships, construction of residen tial/commercial premises, roads or bridges to the extent specified in notification

Trading in Transferable Development Rights (TDRs). Manufacture of cigars , cheroots, cigarillos and cigarettes , of

tobacco or of tobacco substitutes. 

Sectors where FDI is NOT allowed in India

TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (Financial years)

Amount Rupees in crores (US$ in million)

Ranks Country 2008-09 (April- March)

2009-10(April- March)

2010-11 ( April- March)

Cumulative Inflows (April ’00

- March ‘11)

%age to total Inflows (in terms

of US $)

1 MAURITIUS 50,899(11,229) 49,633 (10,376) 31,855 (6,987) 242,761 (54,227)

42 %

2 SINGAPORE 15,727 (3,454) 11,295 (2,379) 7,730 (1,705) 52,876 (11,895) 9 %

3 U.S.A. 8,002 (1,802) 9,230 (1,943) 5,353 (1,170) 42,542 (9,449) 7 %

4 U.K. 3,840 (864) 3,094 (657) 3,434 (755) 29,433 (6,639) 5 %

5 NETHERLANDS 3,922 (883) 4,283 (899) 5,501 (1,213) 25,627 (5,700) 4 %

6 JAPAN 1,889 (405) 5,670 (1,183) 7,063 (1,562) 23,958 (5,276) 4 %

7 CYPRUS 5,983 (1,287) 7,728 (1,627) 4,171 (913) 21,948 (4,812) 4 %

8 GERMANY 2,750 (629) 2,980 (626) 908 (200) 13,376 (2,999) 2 %

9 FRANCE 2,098 (467) 1,437 (303) 3,349 (734) 10,267 (2,264) 2 %

10 U.A.E. 1,133 (257) 3,017 (629) 1,569 (341) 8,592 (1,890) 1 %

TOTAL FDI INFLOWS * 123,025 (27,331)

123,120 (25,834)

88,520 (19,427) 580,722 (129,716)

-

SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS

Amount in Rs. crores (US$ in million)

Ranks Sector 2008-09 (April- March)

2009-10(April- March)

2010-11 ( April- March)

Cumulative Inflows (April ’00 - March

‘11)

%age to total Inflows (in terms of

US $)

1 SERVICES SECTOR(financial &

non-financial)

28,516 (6,138) 20,776 (4,353) 15,539 (3,403) 120,771 (27,007) 21 %

2 COMPUTER SOFTWARE & HARDWARE

7,329 (1,677) 4,351 (919) 3,571 (784) 47,700 (10,723) 8 %

3 TELECOMMUNICATIONS (radio paging,

cellular mobile, basic telephone

services)

11,727 (2,558) 12,338 (2,554) 7,546 (1,665) 48,220 (10,589) 8 %

4 HOUSING & REAL ESTATE

12,621 (2,801) 13,586 (2,844) 5,149 (1,127) 43,192 (9,632) 7 %

5 CONSTRUCTION ACTIVITIES

(including roads & highways)

8,792 (2,028 13,516 (2,862) 5,077 (1,125) 40,770 (9,178) 7 %

6 AUTOMOBILE INDUSTRY

5,212 (1,152) 5,754 (1,208) 6,008 (1,331) 26,831 (5,927) 5 %

7 POWER 4,382 (985) 6,908 (1,437) 5,709 (1,252) 26,712 (5,900) 5 %8 METALLURGICAL

INDUSTRIES4,157 (961) 1,935 (407) 5,055 (1,105) 18,495 (4,235) 3 %

9 PETROLEUM & NATURAL GAS

1,931(412) 1,328 (272) 2,621 (574) 13,735 (3,153) 2 %

10 CHEMICALS(other than fertilizers)

3,427(749) 1,707 (362) 1,810 (398) 13,078 (2,892) 2 %

Total FDI in 2012: $26 billionRank in FDI inflow (2011): 14Rank in FDI inflow (2012): 15India, which has a per capita income of

$3,991, attracted $26 billion in FDI in 2012.

THANK YOU