Foreign Direct Investment In India

Benu Sehgal

Content
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Introduction Classification of FDI Regulatory Authorities India Policy Framework Global Comparison Benefits of FDI Problems with FDI

Introduction
Foreign Direct Investment (FDI) refers to: Cross border investment made by a resident in one economy (the direct Investor) with an objective of lasting interest in an enterprise (the direct investment enterprise) that is the Resident in the country other than that of the direct investor.

Types of FDI

BY DIRECTI ON INWARD OUTWAR D

BY TARGET GREENFIELD INVESTMENT HORIZONT AL FDI VERTICA L FDI

BY MOTIVE RESOUR CE MARKE SEEKING T SEEKIN EFFICIE G NCY SEEKIN G

NEEDS FOR FOREIGN CAPITAL :

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Domestic capital is inadequate for purpose of economic growth. During the period in which the capital market is in the process of development, foreign capital is essential as a temporary measure. Foreign capital brings with it other scarce productive factors; technical know how, business experience and knowledge.

Authorities dealing with Foreign Investment.

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Foreign Investment Promotion Board (FIPB)

Expedite Clearance process. Periodically review implementation of cleared proposals. Review general and sectoral policy guidelines. Undertake investment promotion activities.

Secretariat for Industrial Assistance (SIA) Acts as gateway to industrial investment in India. Assist entrepreneurs & investors in setting up projects. Liaise with Govt. bodies to seek necessary clearance.

Authorities dealing with Foreign Investment.

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Foreign Investment Implementation Authority. (FIIA)

Quick implementation of FDI approvals. Resolution of operational difficulties faced by foreign investors. Gather feedback from foreign investors.

Other authorities involved : Investment commission. Project Approval Board. Reserve Bank of India.

Approval Routes For Foreign Investment APPROVAL ROUTES

Approval from FIPB AUTOMATIC ROUTES
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Under Delegated powers by RBI

FDI under 100% for new & exciting Companies, JVs Firm is permitted Under Automatic routes for all items Except For those for approval from SEBI Or FBI
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Under Foreign Investment Promotion Board v Required for the project that do not qualify for automatic approval route v A proposal to be made to FIPB, which studies the project & coveys its decision within 30 days of submitting application v Preference is given to projects in high priority industries.

Government Policy
Foreign Investment is allowed in all area except following sectors where foreign investment is prohibited :

Atomic energy Agriculture (except floriculture, horticulture, seed development etc.) Lottery business / Gambling and betting. Plantations (except tea plantation)

Mobilization of FundsDifferent options for Indian Corporates.

Investments through GDRs and ADRs. Mobilization of funds through preference shares. Mobilization of funds through external commercial borrowings. Foreign currency exchangeable bonds.

FDI Equity Inflow By Countries.

Sectoral Distribution Of FDI

FDI Equity Inflow By Sectors

FDI Inflow Financial Year Wise

FDI Inflow Financial Year - Wise

Primary Reasons For FDI Investments In India.

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Local Market Demand 86% Low cost operations 29% Ease of making FDI 29% Labour Availability 29%

Entry of other players 24% Political Stability 24% Time zone advantage 14%

Top Five Drivers And The Concerns

Global Comparisons

Global Comparisons

Benefits of FDI
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Play a complementary role in overall capital formation. Employment generation and productivity enhancement. Encourages the transfer of management skills, intellectual property, and technology. Improves forex position of the country. Promotion of the competition within the local input market. Development of the human capital resources. Increase in exports. Increases tax revenues.

Problems with FDI

A company may lose out on its ownership to as overseas company. Government has less control over the functioning of the company that is functioning as the wholly owned subsidiary of an overseas company. FDI entering and taking the control of already established market, where local companies are meeting the requirements of the market. Invest in machinery and intellectual property, not in wages. Large giants can set up monopolies in highly profitable sector.

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