Fdi in India_final

8/3/2019 Fdi in India_final

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Karan Bhagat(77)Geetanjali Goel(59)

Hema G(66)Rachel Ferreira(56)

Cydwel Mascarenhas(88)Deepak Ray(48)Haritha V(65)

Glorin Sebastian(61)


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FOREIGN DIRECT INVESTMENTAny form of investment that earns interest in enterprises

which function outside of the domestic territory of theinvestor.

Business relationship between a parent company and itsforeign subsidiary. Foreign direct investment (FDI) is prohibited in the following cases:

Gambling and Betting , Lottery Business, Retail Trading (except singlebrand retail trading),Atomic Energy, Housing and Real Estates,

Agriculture. 100% FDI is permitted for the following activities: Electricity Generation

(except Atomic energy),Electricity Transmission, Electricity Distribution,Mass Rapid Transport System, Roads & Highways, Toll Roads, VehicularBridges, Ports & Harbors, Hotel & Tourism


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Promoting technologyand other linkages to

enhance domestic industrycompetitiveness

FDI

Attracting long-termforeign capital to

supplement domesticinvestment efforts,

particularly in infrastructureand export competitive sectors

Developing attractiveConfigurations of

locational advantagesat global level

Creating skilled employmentOpportunities and Importof world Class managerial

practices


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DETERMINANTS OF FDI Size as well as the growth prospects of the economy

Dimensions of the host country

Population of a country

Per capita income

Natural resources e.g. Industries in Arab countries

Inexpensive labor force

Infrastructural factors like the status oftelecommunications and railways


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PHASES OF INDIAN ECONOMY 1947-1980

Command and Control Economy

1991-2000Liberalization and Globalization of Indian Economy

post 2000

Political Coalitions have started providing stable

governments


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Progressive Liberalization

Pre-1991 FDI was allowed selectively up to 40% under FERA

This period was dominated by the Congress party

1991 35 high priority industry groups were placed on the Automatic Route for FDI up

to 51%

Minority Congress government: Initiated economic reforms in a big way

1997 Automatic Route expanded to 111 high priority industry groups up to 100%/ 74%/

51%/50%

United Front Government: Inclusive of left parties, was perceived as

traditionally opposed to FDI, but continued with the reforms.

2000 All sectors placed on the Automatic Route for FDI except for a small negative list

BJP coalition government:(coalition of Left and Right wing parties) was

traditionally seen as opposed to FDI, but continued with economic reforms.

Post 2000 Many new sectors opened to FDI; viz., insurance (26%), integrated townships

(100%), mass rapid transit systems (100%), defence industry (26%), tea

plantations (100%), print media (26%).

Sectoral caps in many other sectors relaxed;

BJP coalition government: pursued reforms vigorously and initiated secondgeneration reforms.


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FDI Approval Procedure

Government Route for few

sectorsAutomatic Route in most

Sector

RBI FIPB

No permission required, only

to notify RBI within 30 days of

issue of shares to foreign

investors

Approval is

granted generally

in 30 days


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FDI in Tourism Industry

Under the automatic path, 100 percent FDI is allowed

in hotels and tourism. Travel and tourism is a US$32billion business in India with an input to 5.3 percent ofIndian GDP. Many worldwide hotel groups are settingup their businesses in India and many global tour

operators are establishing operations in the country


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With a view to stimulate domestic and internationalinvestments in this sector, the government haspermitted 100 percent FDI in the automatic route allowing full FDI into all construction developmentprojects including construction of hotels and resorts,recreational facilities, and city and regional levelinfrastructure.


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A five year tax holiday has been given to organizationsthat set up hotels, resorts and convention centers atspecific destinations, subject to fulfillment with the

agreed conditions. Some international hospitality majors such as Hilton,

Accor, Marriott International, Berggruen Hotels,Cabana Hotels, Premier Travel Inn (PTI) and

InterContinental Hotels group have alreadyannounced major venture plans in India in recentyears expected to addUS$11.41 billion in inboundinvestments


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Popular types of tourism in India

Medical Tourism Spiritual Tourism

Rural Tourism

Adventure Tourism

Eco Tourism


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Future trends

According to the Indian Tourism ministry, the Indiantourism industry would be the third largest foreignexchange earner in the country in the next three year.

According to the ministry, it is predicted that aroundUS$10 billion is required for the development of Indiantourism in the next five years. When we think of longterm capital requirements for all the states, it would benearly US$56 billion in the next 20 years


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There are certain points which make India a hotdestination for investment in tourism department.

Positive attitude of the government, who has allowed100 percent FDI in this sector. Last year in the Indianunion budget 2010, the Indian government has givenmore than INR1,000 crore to the Ministry of Tourism.

The tax holidays are being given to the organizationswho want to invest in this sector. All this makes Indiastourism industry a great investment option


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Information Technology

The Indian Information Technology industry

accounts for a 5.19% of the country's GDP and exportearnings , while providing employment to a significantnumber of its tertiary sector workforce.


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FDI upto 100 percent is permitted for E-Commerceactivities subject to the condition that such companieswould divest 26 percent of their equity in favour of theIndian public in five years, if these companies arelisted in other parts of the world. Such companieswould engage only in business to business (B2B) E-Commerce and not in retail trading, inter alia,

implying that existing restrictions on FDI in domestictrading would be applicable to E- Commerce as well


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Investment key points !As per the report of the Department of Industrial

Policy and Promotion, worth of US$ 10,705 million as acumulative foreign direct investment has been

invested in the computer software and hardware sectorduring the period of April 2000 and February 2011

Aiming to pursue additional software developmentand training facilities in various special economic

zones in some of the major cities designating 55,000employees, Cognizant Technologies will capitalize overUS$ 500 million by the end of 2014 as an expansionproject


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In terms of manufacturing lightweight PC, theworldwide notable chip maker, Intel is looking forwardto invest above US$ 1 billion in India in the comingyears

Dell India gaining 80% sales during last year with US$

700 million revenues

N B ki Fi i l C i


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Non-Banking Financial Companies

(NBFC)

49% FDI is allowed from all sources on theautomatic route subject to guidelines issuedfrom RBI from time to time.

A .FDI/NRI/OCB investments allowed in the following 19 NBFCactivities shall be as per levels indicated below:

Merchant banking , Underwriting ,PortfolioManagement Services ,Investment Advisory Services,Financial Consultancy , Stock Broking , AssetManagement , Venture Capital , Custodial Services ,Factoring ,Credit Reference Agencies , Micro Credit ,Rural Credit.


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B. Minimum Capitalization Norms for fund based NBFCs:i) For FDI up to 51% - US$ 0.5 million to be brought

upfrontii) For FDI above 51% and up to 75% - US $ 5 million to bebrought upfront

iii) For FDI above 75% and up to 100% - US $ 50 millionout of which US $ 7.5 million to be brought up front and

the balance in 24 months

C. Minimum capitalization norms for non-fund basedactivities:

Minimum capitalization norm of US $ 0.5 million isapplicable in respect of all permitted non-fund basedNBFCs with foreign investment.


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D. Joint Venture operating NBFC's that have 75% or less than75% foreign investment will also be allowed to set up

subsidiaries for undertaking other NBFC activities, subjectto the subsidiaries also complying with the applicableminimum capital inflow.

E. FDI in the NBFC sector is put on automatic route subjectto compliance with guidelines of the Reserve Bank ofIndia.RBI would issue appropriate guidelines in thisregard.


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Insurance Sector: FDI in Insurance

sector in India

FDI up to 26% in the Insurance sector is allowed onthe automatic route subject to obtaining license from

Insurance Regulatory & Development Authority(IRDA)


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Telecom Sector: Regulations 49% Foreign Investment

National Long Distance, International Long Distance,Value Added Services and Global Mobile PersonalCommunications by Satellite,

74% Foreign Investment

Internet Service (with gateways)

Infrastructure Providers (Category II) Radio Paging Service


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100%

ISPs not providing gateways (Both for satellite andsubmarine cables)

Infrastructure Providers providing dark fibre (IPCategory I)

Electronic Mail

Voice Mail

I ti f i t t i


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Incentives for investment in

Telecom Sector

Movement towards technology neutral UnifiedLicensing Regime

Permission for Inter-Circle & Intra-Circle Mergers

Good growth in teledensity, subscriber base etc.

Import duty rates have been reduced for various telecomequipment

24


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Vodafone Essar Major foreign

Company

UK based

Market Share 21%

It operates in 23 telecom circles

Vodafone owns 74% of the Indian business, while the other26% will be owned by Indian investors, in compliance with

Indian law.

Second largest in terms of market share and revenue.


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Drugs and Pharma: Regulations FDI up to 100% is permitted on the automatic route for

manufacture of drugs and pharmaceuticals.

FDI proposals for the manufacture of licensable drugsand pharmaceuticals will require prior Governmentapproval.

Scrutiny is required for acquisitions and for directinvestments it is not required


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Advantage in India Competent force Cost effective chemical synthesis

Legal and financial framework

Information technology Globalization


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Foreign Pharmaceutical Companies GlaxoSmithKline

Sanofi-Aventis


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FDI IN RETAIL SECTOR


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RETAILING WHAT IS IT? Retailing is the interface between the producer and the individual consumer

buying for personal consumption

A retailer is one who stocks the producers goods and is involved in the act of sellingit to the individual consumer, at a margin of profit.

As such, retailing is the last link that connects the individual consumer with themanufacturing and distribution chain.

The retail industry in India is of late often being hailed as one of the sunrise sectorsin the economy.

India has the second most attractive retail destination globally from among thirtyemergent markets. It has made India the cause of a good deal of excitement, With acontribution of 14% to the national GDP and employing 7% of the total workforce.


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THE INDIAN SCENARIO Trade or retailing is the single largest component of the services sector in terms of

contribution to GDP with a massive share of 14%

The retail industry is divided into organised and unorganised sectors. Organised retailing refers to trading activities undertaken by licensed retailers,

that is, those who are registered for sales tax, income tax, etc.These include the corporate-backed hypermarkets and retail chains, and also theprivately owned large retail businesses.

Unorganised retailing, on the other hand refers to the traditional formats of low-cost retailing.For example, the local kirana shops, owner manned general stores,paan/beedishops, convenience stores, hand cart and pavement vendors, etc.

Unorganized retailing is by far the prevalent form of trade in India constituting98% of total trade, while organised trade accounts only for the remaining 2%.


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THE FUTURE: OPPORTUNITIES ANDCHALLENGES

FDI can be a powerful catalyst to spur competition in the retail industry, with a goodtalent pool, unlimited opportunities, huge market and cheap labour beingabundantly available.

The Government has proposed to consider raising the FDI limit in single brand fromthe current 51% to 100%.

Talks were being held to allow FDI in multi brand retail, but have not reached aconsensus yet, if this is allowed, retail giants like Wal-Mart, Tesco, Carrefour etc. willbe able to set shop in India.

With regards to challenges, the Indian retail sector is plagued with poor

infrastructure, shortage of mid level managers, Government restrictions etc.

One hopes that the government would stand up to its responsibility, because what isat stake is the stability of the vital pillars of the economy- retailing, agriculture, andmanufacturing.


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CENTRE FOR RAISING FDI LIMIT IN


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CENTRE FOR RAISING FDI LIMIT IN

SINGLE-BRAND RETAIL

The Government was considering raising the 51% FDIlimit in Single Brand Retail businesss like run by Globalchains such as Adidas, Nike, Hermes and Gucci

Union Commerce and Industry Minister Anand Sharma

said he would ask the finance Ministry to lower the tariffbarriers as well.

At present India allows no FDI in multibrand and 100%in cash and carry.

Kingfisher crisis: Govt to consider


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Kingfisher crisis: Govt to consider

FDI in aviation

NEW DELHI: The Kingfisher crisis could force UPA-2 totackle at least one long-pending issue:- allowing foreign airlines to invest in Indiancarriers.

Government needs to rationalise taxes on the aviationsector and ease FDI norms to allow foreign airlines topick up stake in Indian carriers.

The government allows FDI of up to 49 percent in Indiancarriers

Rising crude prices, depreciating rupee value and cut-throat competition have eroded airlines' ability to raisefares despite passenger growth of about 19 percent thisyear

G t b i f i


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Government brings farmers in

loop to push FDI in multi-brand

retail The government to make it mandatory for foreign retailers to do

bulk of their sourcing from small farmers.

The commerce and industry ministry is ready to allow 51% FDI inmulti-brand retail and has provisions that require potentialentrants to source at least 60% of farm produce from small farmershaving land holdings of less than 10 hectares.

the Left parties and the BJP opposed to it because they believeorganised retailers will kill small shopkeepers and traders.

Policymakers in the government are keen to allow FDI in multi-brand retail as they believe this is one reform that could bringmodern technology in back-end infrastructure and help farmersget better remuneration for their produce.


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GOVERNMENT TO LIBERALIZE FDI RBI revealed plans to ease FDI procedures by amending

foreign exchange regulations.

The proposed revisions will remove the need for RBIapproval on the transfer of shares between non-resident

and domestic Investors The aim is to entice foreign investors.

The Indian rules now allow 51% FDI in single-brand retailand 100% in wholesale cash and carry operations and noFDI in multi-brand retail


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Economic growth- This is one of the major sectors, which is enormouslybenefited from foreign direct investment. A remarkable inflow of FDI in

various industrial units in India has boosted the economic life of country.

Trade- Foreign Direct Investments have opened a wide spectrum ofopportunities in the trading of goods and services in India both in terms ofimport and export production. Products of superior quality aremanufactured by various industries in India due to greater amount of FDIinflows in the country.

Employment and skill levels- FDI has also ensured a number of

employment opportunities by aiding the setting up of industrial units invarious corners of India. Employees get exposure to globally valued skills.The training and skills upgradation can enhance the value of the humanresources.


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Integration into global economy -A developing country like India, whichinvites FDI, can gain a greater foothold in the world economy bygettingaccess to a wider global market.

Technology diffusion and knowledge transfer- FDI apparently helps in the

outsourcing of knowledge from India especially in the Information Technologysector. FDI can introduce world-level technology and technical know-how and processes.

Increased competition - Companies will also have to improve theirprocesses and products in order to stay competitive in the market. Overall,FDI improves the quality of a products and processes in a particular sector.

Supply of foodgrains: Most of the foreign aid received by India is in form offoodgrains, especially the one under PLA-480. Import of foodgrains hasincreased the ability of the country to meet shortages of foodgrains.


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Helpful in Export Promotion:Value of Indian exports is less than its imports.Increase in exports therefore becomes necessary. Foreign capital can makesignificant contribution in this respect. Many foreign companies are allowed toinstall their units in India, on the condition that they would export certainpercentage of their production. Foreign capital has therefore been instrumentalin promoting exports.

Reduction in Inflation: Foreign capital has also made import of essential goods ona large scale possible. It increases total availability of goods and reduces the rate oninflation.With the inflow of foreign capital, production in the country hasincreased and increased production ensures stable prices, even if demandincreases. Thus foreign capital helps in checking rise in prices.

Availability of risk capital: Indian capital is shy by nature. Private entrepreneursdo not like to invest capital in basic industries and new ventures where the elementof risk is great. FDI serves as venture capital and thus makes up this deficiency.As a result of foreign capital, development has taken place in basic industriesand risky ventures like iron and steel, coal, oil exploration, energy-generation etc.the foreign capital has borne the pioneering risk.


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Increased local sourcing.

Provide better value to end consumers.

Investments and improvement in the supply chains and

warehousing. Franchising opportunities for local entrepreneurs.

Growth of infrastructure.

Increased efficiency.

Cost reduction in areas such as R&D, production, anddistribution.

Fill gaps in a companys product lines in a global industry.

Gain a foothold in a new geographic market


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Disadvantages of FDI

Foreign economic and political influence Fear that foreign direct investment may result in a form of modern day

economic colonialism, exposing host countries and leaving them andtheir resources vulnerable to the exploitations of the foreign company

Aggregate Demand Increases the aggregate demand of the host economy in the short run,

via productivity improvements and technological transfers, leads toconcerns over the efficacy of purported benefits of direct investments. The long-run balance of payment position of the host economy is

jeopardized when the investor manages to recover its initial outlay Once the initial investment starts to turn profitable, it is inevitable that

capital returns from the host country to where it originated from, thatis the home country.

The key implication is this: While the levels of FDI tend to be resilientduring periods of economic uncertainty, it has the potential ofadversely affecting the net capital flow of a developing economyespecially if it does not have a healthy and sustainable FDI schedule.


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Labour Market

All firms are profit maximizing entities, and one way to

achieve this is often the most direct approach of costreduction. FDIs may enter the host country for uniquestrategic reasons but there is ultimately the need to achievereturns on investments.

Evidence shows that multinational companies do pay a slight

premium over local-term wages. Paying a premium for theprice of labour may improve the consumption power of

workers, but it also has the detrimental ability of disruptingthe local employment market.

When prices rise, supply increases while demand falls.Similarly, when the price of labour increase, wage premiumsin this case, this creates a distortion and creates adisequilibrium in the labour market. Job matching stopsbeing efficient and may even create unemployment


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AamAdmis woes Pricing for small-scale farmers (less than 2 hectare

ownership) will probably not improve since they will still besubject to existing collection and consolidation setups andsystems (based on local/ regional strongmen having access toregional farm clusters).

Wastage and rotting at the farming end is a big issue today in

Indian retail scenario. This will probably not improve sincethe back-end investment and development/ utilization ofsupply chain (cold storages, warehousing) is still dependanton business/ political issues that have nothing to do withintroduction of only front end retailers like Wal-mart, Tesco,

etc.... One of the most indirect disadvantages of foreign direct

investment is that the economically backward section of thehost country is always inconvenienced when the stream offoreign direct investment is negatively affected.


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Competition, Dominance and Dependence

Industrial Sector dominance in domestic market Technological dependence on foreign technology sources

FDI has adverse effects on competition.

Change unfavorable Disturbance of domestic economic plans in favor of FDI

directed activities

Culture Change created by Ethnocentric Staffing, the infusion

of foreign culture and foreign business practices Inflation is increased

Local market is affected badly


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Conclusion India is a hot destination for foreign investment First, the positive attitude of the government, India is

continuously liberalizing its FDI policies. The percentageshare of FDI in India is growing at a rapid rate.

It occupies the centre stage in the development of theIndian economy now. Seeing the policies of thegovernment and a favorable environment more and moreinvestment is coming in the form of FDI.

Second is the positive attitude of the people, towardslifestyle product range and knowledge on project and the

internet era. All these put together makes FDI necessary, but to be used

with caution, to create sustainable economic growth, notjust bursts of it.

Fdi in India_final

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