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Foreign Investment In India

Agenda
Structure of Foreign Investments
Foreign Direct Investments Foreign Institutional Investments

Foreign Investment Structure


Foreign Investments in India

Foreign Direct Investments

Foreign Portfolio Investments

Foreign Venture Capital Investments

Other Investments (G-Sec, NCDs etc)

Investments on non repatriable basis

Auto matic Route

Govt. Route
NRIs,

SEBI Registered FVCIs


FIIS

FIIS

NRIs,

PIO
NRIs,

PIO VCF , IVCUs PIO

Person resident outside India

Entry Process for FDIs in India


Investing in India

Automatic Route

Prior Permission/ Government Route


By exception (projects falling outside the automatic route) Approval of Foreign Investment Promotion Board and Cabinet Committee of Foreign Investment (project cost >= Rs 600 cr) is needed. Decision generally within 4-6 weeks and 8-10 week for FIPB and CCFI respectively

General rule Inform RBI within 30 days of inflow/issue of shares Pricing: FEMA Regulations Unlisted CCI Listed SEBI Cap of Rs. 600 Crore
4

FDI incentives for MNC and India


MNC
# Low penetration market provides domestic consumption # Subsidies low corporate tax and tax holidays # Extension of Product Life Cycle # Low labor cost provides opportunity to achieve economies of scale # Investment financial subsidies

India (Host Country)

# Revenue for the government # Employment generation # Results in creation of better goods and services at lower prices for the consumers # Encourages local enterprises to setup supporting industries # Advances technology and processes and increases competition # Greater foothold in the world economy

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 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.

2000

Many new sectors opened to FDI; viz., insurance (26%), integrated townships (100%), mass rapid transit systems (100%), defense industry (26%), tea plantations (100%), print media (26%). Post 2000

Rapid FDI Growth in India

India 2011: An FDI hot spot in a cooling world

Rank 1 2 3 4 5

Top Five countries USA China United Kingdom India Brazil

Number of Projects 2010 1522 1344 941 774 366 2011 1707 1409 1014 932 507

% Change 2011 Vs 2010 12% 5% 8% 20% 39%

Value (2011) US$ Millions 57275 100688 36039 58261 63018

STATEMENT ON COUNTRY-WISE TOP 20 FDI INFLOWS FROM APRIL, 2000 TO FEBRUARY, 2012

STATEMENT ON SECTOR-WISE FDI INFLOWS FROM APRIL, 2000 TO FEBRUARY, 2012.

FDI Not allowed in sectors


Atomic Energy

Lottery Business

Retail Trading (except single brand product retailing) Agricultural (excluding Floriculture, Horticulture, agro and allied sectors etc) and Plantations activities (other than Tea Plantations) Housing and Real Estate business (except development of townships, construction of residential/commercial premises etc)

Gambling and Betting

Business of Chit Fund

Nidhi Company

Trading in Transferable Development Rights (TDRs)


Manufacture of cigars , cigarettes , products of tobacco or of tobacco substitutes

Foreign Direct Investment (FDI)

Foreign Institutional Investment (FII)

Foreign company brings capital Foreign company buys equity in into a company or economy to any company through stock set up a production or some market. other facility. FDI gives some Control in operation of the foreign company FDI is involved in direct production activity and is long term in nature FII does not give any control in operation of the foreign company FII is short term investment mostly in financial market

Differences between FDI and FII

December 2003 Single approval process by SEBI February 2000 Foreign firms and HNIs permitted to invest as subaccounts of FIIs September 1992 FII in primary and secondary market securities and mutual funds

October 2008 Removal of restriction of a 70:30 ratio of Debt and Equity

March 2011 - Limit of corporate bonds issues by Infrastructure sector increased to $25b

The relaxation of investment limits for FIIs The relaxation of the eligibility conditions The liberalization of the investment instruments accessible to FIIs

Historical Evolution of FII in India

Where FII can Invest


Securities in the primary and secondary markets

including shares, debentures, and warrants of companies, unlisted, listed, or to be listed on a recognized stock exchange in India Units of schemes floated by domestic mutual funds including the Unit Trust of India, whether listed or not listed on a recognized stock exchange, or units of schemes floated by a Collective Investment Scheme Dated government securities Derivatives traded on a recognized stock exchange Commercial papers Security receipts Indian Depository Receipts

Rapidly developing Economy

Regulation and Trading Efficiencies


Encouraging corporate results

Attractive Markets

Factors contributing to FII flows in India

FII Investments in India

FIIs in Different Sectors in India.


Sectors Banks Engineering Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 18.41 11.45 19.15 10.63 14.27 7.34 16.02 8.28 17.62 9.36 Sep11 18.17 9.30

Finance
FMCG Information Technology Infrastructure Manufacturing Media & Entertainment Petrochemicals Pharmaceuticals Services Telecommunication Miscellaneous Total stake of FIIs in all the Sectors

18.18
11.91 14.53 7.15 9.57 15.20 5.83 11.17 13.09 11.17 8.19 10.78

17.44
14.07 16.00 8.86 9.46 11.71 4.73 10.69 10.70 9.12 9.30 10.62

13.01
12.72 12.44 7.31 7.28 11.42 4.77 7.88 8.39 6.85 8.39 8.40

16.53
14.09 11.68 8.90 8.79 7.06 6.08 8.78 8.05 8.64 8.10 9.58

23.35
16.34 21.16 7.87 9.41 10.97 6.52 10.19 7.41 8.44 13.65 10.32

19.20
17.00 17.07 7.50 9.60 11.63 6.49 10.13 9.50 8.46 13.37 10.45

Monitoring by RBI
FII - Purchase of Equity Shares Aggregate Yes purchase of Equity Shares<2% below overall limit Ceilings: 24% Paid up capitalIndian Company 20% for Paid up capital Public Sector Banks 10% for NRIs/PIOs Stop Equity Share Purchase No No Cautio n Mail to Banks RBI Approval Yes

Purchase up to Ceiling Limits.

Advantages

Increase in Forex Reserves Increase in Domestic Savings and Investments Large Availability of Capital

Disadvantages

Reduces flexibility of Policy makers Problem of inflation Problems for small investors Hot Money which can not be used for long term

Advantages and Disadvantages of FII

Helping India Grow!!!

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