FDI & FII: A balanced

perspective
By
Rohit Anand Garg
Abhishek Mukherjee
FDI
An investment made by a company or entity based in one country,
into a company or entity based in another country. It can be either
by setting up a subsidiary or associate company in the foreign
country, by acquiring shares of an overseas company, or through a
merger or joint venture.
Foreign investment was introduced in 1991 under Foreign Exchange
Management Act (FEMA), driven by then finance minister
Manmohan Singh.
FDI is prohibited under the Government Route as well as the
Automatic Route in the following sectors:
Atomic Energy
Lottery Business
Manufacture of cigars, cigarettes and various other tobacco products

FDI Limits in India
26% FDI is permitted in
Newspaper and media, Petroleum refining, Pension sector
49% FDI is permitted in
Banking , Cable network, DTH, Infrastructure investment, Telecom,
Insurance
51% FDI is permitted in
Multi-Brand Retail, Petro-pipelines
74% FDI is permitted in
Atomic minerals, Petro marketing, Coal and Lignite mines, Telecom
100% FDI is permitted in
Single Brand Retail, Airports, Cold-storage, BPO/Call centres, E-
commerce, Energy (except atomic), Hotel, tourism, Metro train, Mines
(gold, silver), Petroleum exploration, Pharmaceuticals, Pollution control,
Postal service, Roads, highways, ports.




Before After
Insurance Sector 26%
Automatic
Route
49% Automatic Route
Telecom Services 74%
Government
Route
100%
Automatic up to 49% Government route
beyond 49% and up to 100%
Tea Plantation 100%
Government
Route
100%
Automatic up to 49% Government route
beyond 49% and up to 100%
Asset
Reconstruction
Company
74%
Government
Route
100%
Automatic up to 49% Government route
beyond 49% and up to 100%
Courier Services 100%
Government
Route
100% Automatic Route
Single Brand
product retail
trading
100%
Government
Route
100%
Automatic up to 49% Government route
beyond 49% and up to 100%
Defence Sector 26%
Government
Route
No
Chang
e
Higher limits of foreign investment in
"state-of-the-art" manufacturing would
be considered by the CCS
Credit Information
Companies
49%
Government
Route
74% Automatic Route
Top 10 FDI receivers of 2012
United States: $258 billion
China: $220 billion
Belgium: $102 billion
Hong Kong (China): $90 billion
Brazil: $72 billion
Australia: $66 billion
Singapore: $64 billion
Russia: $53 billion
France: $45 billion
Canada: $40 billion
India-- $26 billion, down 29%
Top FDI investors in India
Those were the days
Sector-wise distribution
State-wise distribution
Cumulative FDI inflows (2000-12)
FII
An investor or investment fund that is from or registered in a country
outside of the one in which it is currently investing. Institutional investors
include hedge funds, insurance companies, pension funds and mutual
funds.
International institutional investors must register with the Securities and
Exchange Board of India to participate in the market
FIIs can invest in :
Stock Markets
Mutual Funds
Government securities
Derivatives traded on a recognized stock exchange
Commercial Papers
Prof Chidambaram
Mr. Chidambaram said on FDI and FII: In order to remove the ambiguity that
prevails on what is FDI and what is FII, I propose to follow the international practice
and lay down a broad principle that, where an investor has a stake of 10 per cent or
less in a company, it will be treated as FII and, where an investor has a stake of more
than 10 per cent, it will be treated as FDI.



PROS CONS
FDI
- Employment generation and increase
in production
- Help in capital formation by bringing
fresh capital
- Helps in transfer of new
technologies, management skills,
intellectual property
- Increases competition within the
local market and this brings higher
efficiencies
- Helps in increasing exports
- Increases tax revenues
- Threat to domestic companies
- Large giants of the world try to take
over the highly profitable sectors
- Too much of ownership is a concern
in strategically important industries
- Foreign investors can exploit local
investors

FII
- Increase Liquidity in the Market
- Capital infused can be used for
growth and development
- Increase the FOREX reserve
- FIIs serve as a benchmark for other
investors who measure their
investment prospects through FII

- Economy and Stock Market becomes
reliable on FII
- Unstable investment - FIIs withdraw
in difficult economic situations

References
http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx
http://www.investopedia.com/articles/investing/030813/look-foreign-direct-
investment-trends.asp
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/155_EHS110912F.pdf
http://www.mondaq.com/india/x/256108/international+trade+investment/Liberali
zation+Of+Foreign+Direct+Investment+Limits+In+12+Sectors
http://www.thehindu.com/business/Economy/budget-clears-ambiguity-over-
definition-of-fii-fdi/article4462354.ece?ref=relatedNews






Thank You and GOD BLESS!!!