Foreign Investment by Group A5
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Transcript of Foreign Investment by Group A5
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Foreign Investment In India
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Agenda
Structure of Foreign Investments
Foreign Direct Investments
Foreign Institutional Investments
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Foreign Investment Structure
Foreign Investments in India
ForeignDirect
Investments
ForeignPortfolio
Investments
ForeignVentureCapital
Investments
OtherInvestments
(G-Sec,NCDs etc)
Investmentson non
repatriablebasis
Automatic
Route
Govt.
Route
Person residentoutside India
FIISNRIs,PIO
FIISNRIs,PIO
NRIs,PIO
SEBI
RegisteredFVCIs
VCF ,
IVCUs
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Entry Process for FDIs in India
4
Automatic Route
Investing in India
General ruleInform RBI within 30 days ofinflow/issue of shares
Pricing: FEMA RegulationsUnlisted CCIListed SEBI
Cap of Rs. 600 Crore
Prior Permission/
Government Route
By exception (projects falling outside theautomatic route)
Approval of Foreign InvestmentPromotion Board and Cabinet Committee
of Foreign Investment (project cost >=Rs 600 cr) is needed.
Decision generally within 4-6 weeks and8-10 week for FIPB and CCFI respectively
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FDI incentives for MNC and India
5
# Low penetrationmarket providesdomestic consumption
# Subsidies low
corporate tax and taxholidays
# Extension of ProductLife Cycle
# Low labor costprovides opportunity to
achieve economies ofscale
# Investment financialsubsidies
MNC # Revenue for thegovernment
# Employmentgeneration
# Results in creation ofbetter goods andservices at lower pricesfor the consumers
# Encourages localenterprises to setupsupporting industries
# Advances technologyand processes andincreases competition
# Greater foothold in theworld economy
India
(HostCountry)
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FDI in India -Time line
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%), defense industry (26%), tea plantations (100%), printmedia (26%).
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Rapid FDI Growth in India
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I di 2011 A FDI h t t i li
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India 2011: An FDI hot spot in a coolingworld
Rank Top Five countriesNumber of Projects % Change Value (2011)
2010 2011 2011 Vs 2010 US$ Millions
1 USA 1522 1707 12% 57275
2 China 1344 1409 5% 100688
3 United Kingdom 941 1014 8% 36039
4 India 774 932 20% 58261
5 Brazil 366 507 39% 63018
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STATEMENT ON COUNTRY-WISE TOP 20 FDIINFLOWS FROM APRIL, 2000 TO FEBRUARY, 2012
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STATEMENT ON SECTOR-WISE FDI INFLOWS
FROM APRIL, 2000 TO FEBRUARY, 2012.
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Atomic Energy
Lottery Business
Gambling and Betting
Business of Chit Fund
Nidhi Company
Trading in TransferableDevelopment Rights (TDRs)
Manufacture of cigars , cigarettes, products of tobacco or of
tobacco substitutes
FDI Not allowed in sectors
Retail Trading (exceptsingle brand productretailing)
Agricultural (excludingFloriculture, Horticulture,
agro and allied sectorsetc) and Plantationsactivities (other than TeaPlantations)
Housing and Real
Estate business (exceptdevelopment oftownships, constructionof residen-tial/commercialpremises etc)
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Foreign Direct Investment(FDI)
Foreign InstitutionalInvestment (FII)
Foreign company brings capitalinto a company or economy toset up a production or someother facility.
Foreign company buys equity inany company through stockmarket.
FDI gives some Control inoperation of the foreigncompany
FII does not give any control inoperation of the foreigncompany
FDI is involved in directproduction activity and is longterm in nature
FII is short term investmentmostly in financial market
Differences between FDI and FII
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September
1992 FII inprimary andsecondarymarketsecurities andmutual funds
February 2000Foreign firms andHNIs permitted toinvest assubaccounts ofFIIs
December 2003Single approval
process by SEBI
October 2008Removal ofrestriction of a 70:30ratio of Debt andEquity
March 2011 - Limitof corporate bondsissues byInfrastructuresector increased to$25b
Historical Evolution of FII in India
The relaxation of investmentlimits for FIIs
The relaxation of the eligibilityconditionsThe liberalization of theinvestment instrumentsaccessible to FIIs
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Where FII can Invest Securities in the primary and secondary marketsincluding shares, debentures, and warrants of
companies, unlisted, listed, or to be listed on arecognized stock exchange in India
Units of schemes floated by domestic mutual
funds including the Unit Trust of India, whetherlisted or not listed on a recognized stockexchange, or units of schemes floated by aCollective Investment Scheme
Dated government securities
Derivatives traded on a recognized stockexchange
Commercial papers
Security receipts
Indian Depository Receipts
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RapidlydevelopingEconomy
Regulationand TradingEfficiencies
Attractive
Markets
Encouragingcorporate
results
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FII Investments in India
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FIIs in Different Sectors in India.Sectors Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Sep-
11
Banks 18.41 19.15 14.27 16.02 17.62 18.17
Engineering 11.45 10.63 7.34 8.28 9.36 9.30
Finance 18.18 17.44 13.01 16.53 23.35 19.20
FMCG 11.91 14.07 12.72 14.09 16.34 17.00
Information Technology 14.53 16.00 12.44 11.68 21.16 17.07
Infrastructure 7.15 8.86 7.31 8.90 7.87 7.50
Manufacturing 9.57 9.46 7.28 8.79 9.41 9.60
Media & Entertainment 15.20 11.71 11.42 7.06 10.97 11.63
Petrochemicals 5.83 4.73 4.77 6.08 6.52 6.49
Pharmaceuticals 11.17 10.69 7.88 8.78 10.19 10.13Services 13.09 10.70 8.39 8.05 7.41 9.50
Telecommunication 11.17 9.12 6.85 8.64 8.44 8.46
Miscellaneous 8.19 9.30 8.39 8.10 13.65 13.37
Total stake of FIIs in all the
Sectors
10.78 10.62 8.40 9.58 10.32 10.45
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Monitoring by RBI
FII - Purchase ofEquity Shares
Aggregate
purchase ofEquity
Shares
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Advantages and Disadvantages of FII
Increase in Forex Reserves Increase in Domestic Savings and
Investments Large Availability of CapitalAdvantages
Reduces flexibility of Policymakers
Problem of inflation Problems for small investors Hot Money which can not be
used for long term
Disadvantages
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Helping India Grow!!!