Types of Inflows

Types of Inflows

FDI

FII

Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin.

ROUTES OF FDI

INVESTING IN INDIA

AUTOMATIC ROUTE

PRIOR PERMISSION (F.I.P.B.)

ONLY INFORMATION TO RBI WITHIN 30 DAYS OF INFLOW/ ISSUE OF SHARES

GENERAL RULE NO PRIOR PERMISSION REQUIRED

EXCEPTION PRIOR GOVERNMENT APPROVAL NEEDED

DECISION GENERALLY WITHIN 4 TO 6 WEEKS

Foreign Institutional Investor (FII)

Foreign Institutional Investment is used to denote

an investor - mostly of the form of an institution or entity, which invests money in the financial markets of a country different from the one where in the institution or entity was originally incorporated.
FII investment is frequently referred to as hot

money for the reason that it can leave the country at the same speed at which it comes in.

FII Inflow in India

Financial year FII Inflow(Values in INR Crores)

2000-01
2001-02 2002-03 2003-04

9,933.4
8762.6 2689.3 45,764.7

2004-05
2005-06 2006-07 2007-08

45,881.3
41,466.7 30,840.4 66,179.1

2008-09
2009-10 2010-11

-45,811
1,42,658 1,46,438

FDI Limit in Different Sector

Sector/Activity
Airports Construction Development Petroleum & Natural Gas (b) Refining Other than Refining Telecommunication Basic and cellular;STD/ISD Manufacture of telecom equipment Power ( Except Atomic energy); regulations transmission, distribution and Power Trading Ports Roads & Highways Shipping 74% 100% 100% Automatic up to 49% Automatic Automatic 26% (For PSUs) FIPB 100% ( Private companies) Automatic 100% Automatic

FDI Cap/Equity
100% 100%

Entry Route
Automatic Automatic

100% 100% 100%

Automatic Automatic Automatic

FDI is not permissible in the following cases

Gambling and Betting, or

Lottery Business, or Business of chit fund Housing and Real Estate business. Trading in Transferable Development Rights (TDRs) Retail Trading Atomic Energy

40,000

35,000

30,000

Us $ Billion

25,000

20,000

15,000

10,000

5,000

0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Financial Year

1.44%

MAURITIUS

1.87% 2.30%

18.60% 41.56%

SINGAPORE U.S.A. UNITED KINGDOM

3.75% 4.15% 4.32% 5% 7.17% 9.84%

NETHERLANDS JAPAN CYPRUS GERMANY

FRANCE
UAE others

Service Computer Software and Hardware Telecommunication

31.51%

20.83% 8.15% 7.99%

Housing and Real Estate Construction Activities Automobile Industry Power METALLURGICAL INDUSTRIES PETROLEUM & NATURAL GAS CHEMICALS (OTHER THAN FERTILIZERS) Others

2.20% 2.38%
3.23% 4.63% 4.67%

7.14%

7.27%

Economic Growth Linkages and spillover to domestic firms

Trade

Technology diffusion and knowledge transfer

Employment and skill levels

 Crowding out domestic investment Loss of control Effects on local culture / sentiments socio cultural effects

MANUFACTURING SECTOR

Europeans enter into India in 15th century

What attracted them ?

Our prosperity in the areas of

food and crop production, textiles, glass etc

Our per capita income was at a

satisfactory level.

Portuguese establish there control over the west coast of Goa

Battle of Plassey is fought between Portuguese and British

Union Jack Flutters in India

British Rule established in India

The policies were formed which favored imports instead of exports. The Britain got richer.

Due to the lack of skills raw materials were exported from India and finished goods were imported.

We developed the 4th largest Railway network in world with a history of 60 years in 1920.

However, actual development started post independence

 Ranked 2nd most favored destination for foreign investments after China India ranks among the top 12 producers of manufacturing value added (MVA). In textiles, the country is ranked 4th after China, USA and Italy. In electrical machinery and apparatus, it is ranked 5th.

According to a United Nations Industrial Development Organization (UNIDO) analysis based on 2007 figures mentioned in the International Yearbook of Industrial Statistics 2009

 6th position in the basic metals category

7th in chemicals and chemical products

10th in leather, leather products, refined petroleum products and

nuclear fuel

12th in machinery and equipment and motor vehicles.

According to a United Nations Industrial Development Organization (UNIDO) analysis based on 2007 figures mentioned in the International Yearbook of Industrial Statistics 2009

Attracted only $3.4 billion of FDI in manufacturing on an average every year from 2000 to 2008

67% of Chinas total FDI comes in the manufacturing sector compared to 37% in case of India (even 100% FDI in most manufacturing sectors)

Acc to FICCI Action plan, India can attract $12billion of FDI in the manufacturing sector per annum

FDI IN SERVICE SECTOR

 India's large service industry accounts for more

than 57.7% of the country's GDP

It makes up more than 25% Employment Service sectors like telecommunication, IT enabled

services, insurance, air transport are becoming important.

 Introduction of LPG in 1991 Growing presence of transnational corporations and

the technological progress

Liberalization of many service sectors activities

(telecom, transport, finance etc.)

FDI contribution to Services Sector

Attracted $3.12 billion FDI in the first seven

months of 2009-10
22 per cent of the total FDI inflows of $17.64 billion

in the April-October for service sector

In 2008-09, attracted the maximum FDI worth

USD 6.11 billion.

FDI Policy in Services Sector

100% FDI is permitted for many service sectors

(Real estate, construction, hotels, tourism, films, IT and IT

- enabled services, consultancy, renting, medical, education, advertising etc)

Restricted sectors in Services

Atomic Energy, Lottery Business, Gambling and

Betting, Business of Chit Fund, and any activity/sector that is not opened to private sector investment.
Besides the above, FDI is not allowed in

plantations.

Current issues with FDI in Services Sector

Very weak linkages of service sector with the Indian economy (only few cities) Requires highly skilled workers Employee Welfare in time of crisis

Allowed up to 100%

Pilot programme for delivering subsidy directly to farmer

Contributes 14.4% to the GDP

 To connect 66,800 habitations

To construct 1,46,000Km of new rural roads

To Upgrade and modernize 1,94,000Km of existing rural

roads To provide corpus of Rs. 8000 crore RIDF

FDI in Retail.WHY INDIA?

Low share of organized retailing

Increase in disposable income and customer

aspiration Increase in expenditure for luxury items

FDI in Retail.Benefits
Generate huge employment

Increased investment in technology

The huge tax revenue generated. The consumer gains from the wide variety of choices and a more

diversified basket.
The indirect benefits like better roads, online marketing, expansion of

telecom sector etc. Will give a big push to other sectors like agriculture, small and medium size enterprises.

FDI in Retail.Drawbacks
Foreign Players would displace the unorganized retailers

because of their superior financial strengths. The entry of large global retailers such as Wal-Mart would kill local shops and millions of jobs. Induce unfair trade practices like predatory pricing, in the absence of proper regulatory guidelines. Increase in real estate prices and marginalize domestic entrepreneurs

FDI in Real Estate

Second-most favoured destination for FDI in the

world Norms to allow 100% FDI Mar 2005 100 acre criterion to 25 acre criterion

FDI in Real Estate.Why Invest??

India produces an estimated 2 million new

graduates Presence of a large number of Fortune 500 Real estate investments in India yield huge dividends

Tourism
Raised to $120mn

Major source of employment

Third largest earner of foreign exchange Private investments through public private

partnership

Need for FDI in Tourism

Foreign tourist arrivals are expected to grow to 10

million by 2010-12 Estimated that tourism in India could contribute Rs.8,50,000 crores to the GDP by 2020

Reasons for low FDI

Multitude of taxes

High Taxes
Highest import duty on imported liquor used in

hotels Service Tax on Tour Operators Inland Air Travel Tax

Attract more FDI in Tourism Sector

Rationalize the taxation on the hotel industry

Service Tax should be computed based on the

value of service provided Inland Air Travel Tax should be applied at the rate of 5% of the basic ticket price