FDI is any form of Investment that earns interest in

enterprises which function outside of the domestic territory of

the Investor. It is defined as a form of investment made in
order to gain steady, constraint & long lasting interest in
enterprises that are operated outside of the economy of the
shareholder/depositor.
 FDI IN INDIA

 The policy related to FDI in India came in july

1991 when the new industrial policy agreed
upon & provided automatic approval for the
projects which included foreign equity
participation up to 51%.
 It allows freedom of location, choice of any
technology , repatriation of capital &
dividends of any kind.
 JUSTIFICATION

 FDI inflow in India increased to us $27.31 billion in

financial year 2008-09.
 Despite of economic slow down growth rate is 11% over
previous financial year.
 FDI as potential to enhancing economic activity and
employment in country.
 According to world investment report 2007-08 India is
the second most attractive location for FDI for 2007-09.
 Routes…

 Automatic Route
 FDI up to 100 % permitted except some sectors

 No prior approval required by investor

 Investment by NRIs
 FIPB Route
 The proposal for foreign investment is decided
on a case to case basis depending on the
merits of the case and in accordance with the
prescribed sectoral policy
 Preference given to projects in high priority
industries
 Government Policy
on FDI…
 Automatic approval

 Government approval

 Hiring of foreign technicians

 Investment by way of acquisition of shares

 Investment by Foreign Institutional Investors

 Authorities Dealing with
Foreign Investment

 Foreign Investment Promotion

Board( FIPB )
 Ensures expeditious clearance of proposals for
FDI
 Periodically reviewing the implementation of
proposals cleared earlier.
• Secretary for Industrial Assistance ( SIA )

Acts as a gateway to industrial investments in India

• Foreign Investment Implementation Authority (

FIIA )

For quick implementation of FDI approvals and

resolution of operational difficulties faced by foreign
investors
 FDI Allowed upto 100% FDI Allowed upto 74%

 Advertising and Films

 Atomic Energy
 Agriculture (Including
Plantation)  Banking
 Broadcasting  Coal and Lignite
 Cigarettes
 Drugs and Pharmaceuticals
 Mining
 Real Estate
 FDI Allowed upto
26%
 Civil Aviation

 Defense

 Insurance

 Refining
Source: http://www.investinginindia.in/sectoral.htm
 CORELATION COEFF can be calculated-
Using KARL PEARSON method:

Rk = (nΣXY) - (ΣX*ΣY)

√(nΣ X2 – (ΣX)2 * √nΣ Y2 – (ΣY)2

Substituting values from the above table:
We get Correlation coeff as,
Rk= (+)0.3646

+ve sign shows the favorable relationship between

the two. That means both are increasing
 Investments through
GDRs/ ADRs/ FCCBs

 Now a days Indian companies are allowed to

raise capital in the international market
through the issues of GDRs/ ADRs/ FCCBs,
subject to certain restrictions.
 Foreign investment thorough these is also
treated as FDI.
 Mobilization of funds
through preferences
shares
• Companies registered in India can mobilize foreign
investment through issue of preferences shares for
financing their projects/ industries.

• Foreign investment through preferences shares is

treated as FDI.

• Issue of preference shares should conform to

guidelines prescribed by SEBI (in case of listed Indian
companies), RBI and other statutory requirements.
 Mobilization of funds
through (ECBs)

• Companies registered in India are allowed to raise

ECBs from any internationally recognized source such
as banks, financial institutions, export credit agencies,
suppliers of equipment, foreign collaborators, foreign
equity holders.

• NGOs engaged in micro finance activities are eligible

to avail ECB subject to prescribed conditions
 ENTITY OPTION IN INDIA

 Operating as Indian company

1. Wholly owned subsidiary
2. Joint venture

 In case of wholly owned subsidiary joint venture

should be with an Indian partner preferably with
majority equity participation.
Company should be registered company with the
registrar of companies (RoC).

 foreign company can operate in India through liaison,

project officer , branch office.
 Guidelines for consideration of FDI proposal

 FIPB (foreign investment promotion board) gives

guidelines to companies investing an India.
 Govt. can also takes decision in case of FDI.
 All the application should be put before the FIPB
within 15 days before putting to administrative
ministries.
 FIPB should consider the sectoral requirements &
the sectoral policies while making of the
recommendations.
 Issue/transfer/pricing of shares will be as per
SEBI/RBI guidelines.
 The extent of foreign equity proposed to be held
(24% for SSI units ;49% for airtaxi/airlines
operators,74%in basic/cellular in the telecom sector)
 Extent of equity from the point of view whether the
proposed project would amount to a holding
companyor a company with dominant foreign
investment(75% or more)joint venture
 Benefits of FDI

• Foreign direct investment helps in the overall economic

development of the nation.

• FDI assists in the promotion of the competition within the local

input market of a country.

• FDI helps create more job opportunities

• FDI plays a crucial role in context of the rise of productivity of the

host nation.

• The small and medium sized enterprises can borrow finance at

lesser rates of interest

• FDI is one of the major external sources of financing for most of

the countries.
 Disadvantages of
FDI

 At times certain foreign policies are adopted that are not

appreciated by the workers of the recipient country. 

• FDI, at times , is disadvantageous for the ones who are making

the investment themselves. 

• FDI may entail high communication and traveling expenses. 

• Difference in language & culture between the country of investor

and the host nation could also pose a problem. 

• At times there has been adverse affect of FDI on the balance

payments of the country.
 CONCLUSION

• Indian economy has reached in the orbit of high

rate of economic growth.
• It is being widely acclaimed and recognized as an
emerging global economic power.
• FDI inflows have been increased in the post-reform
period and India now seems to be quite attractive
place for such kind of investments.
• In quantitative terms, India’s global share of FDI is
still very low.
 Conclusion….

 FDI has come in the most capital intensive

sectors, therefore, the desired employment
opportunities could not be created especially
for the manual and the semi skilled labor.
High skilled labor gained substantially. That is
why high growth is called urban centric and
thus has created a wedge between the rural
and urban economy.