FOREIGN DIRECT INVESTMENT IN

INDIA - Classroom Presentation

By,
CHANNAVEER
PAK9079
UAS GKVK , BANGALORE
CONTENT

 Introduction
 Classification of FDI
 Regulatory Authorities
 India’s Policy Framework
 India’s FDI outlook
 Global comparison
 Benefits of FDI
 Problems with FDI

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INTRODUCTION

Foreign direct investment (FDI) refers to

Cross-border investment made by a resident in one economy (the direct

investor) With the objective of establishing a lasting interest in an

enterprise (the direct investment enterprise) that is

Resident in a country other than that of the direct investor.

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CLASSIFICATION OF FDI

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 NEED FOR FOREIGN CAPITAL:
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

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AUTHORITIES DEALING WITH FOREIGN INVESTMENT

 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

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AUTHORITIES DEALING WITH FOREIGN INVESTMENT

 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

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APPROVAL ROUTES FOR FOREIGN INVESTMENT
Approval Routes
Automatic Route Approval by FIPB
• Under delegated powers exercised by • Under Foreign Investment Promotion
RBI Board.

• FDI upto 100% for new and existing • Required for the projects that do not qualify
companies , JVs,firms is permitted for automatic approval route.
under automatic route for all items
except for those where approval from • A proposal to be made to FIPB which studies
SEBI or FIPB is required. the project and conveys it’s decision within
30 days of submitting application.

• Preference is given to projects in high priority

industries.

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GOVERNMENT POLICY

Foreign investment is allowed in all areas 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 plantations)

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MOBILIZATION OF FUNDS –
Different 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

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FDI EQUITY INFLOW BY COUNTRIES

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SECTORAL DISTRIBUTION OF FDI

* All figures in billion $

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FDI EQUITY INFLOW BY SECTORS

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 FDI INFLOW FINANCIAL YEAR- WISE

Amount of FDI inflows

Year (April-March)
(In US$ million)
1995-1996 2,141
1996-1997 2,770
1997-1998 3,682
1998-1999 3,083
1999-2000 2,439
2000-2001 2,908
2001-2002 4,222
2002-2003 3,134
2003-2004 2,634
2004-2005 3,755*

2005-2006 (Upto March 2006) 5,549

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FDI INFLOW – FINANCIAL YEAR-WISE

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PRIMARY REASONS FOR FDI INVESTMENTS IN INDIA

 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%

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TOP FIVE DRIVERS & THE CONCERNS

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GLOBAL COMPARISONS

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GLOBAL COMPARISONS

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BENEFITS OF FDI
• 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

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PROBLEMS WITH FDI

• A company may lose out on its ownership to an 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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 THANK YOU

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