Foreign Direct Investment

(UHU081 Engineering Economics)

Presentation by
Aakash Sangal 101301001
Aayush Nassa 101301003
Abhishek Kumar 101301005

Copyright 2013-2014
Achal Gupta 101301006
Ankit Khosla 101301012
Balraj Singh 101301018
Foreign Direct Investment

It is the process whereby residents of one country

acquire ownership of assets for the purpose of
controlling the production, distribution and other
activities of a firm in another country.

Investment made to acquire lasting interest in

enterprises operating outside the economy of
the investor.

Copyright 2013-2014
 Overview of FDI Inflows

Copyright 2013-2014
3
22/9/2013
 Sector-wise Distribution

Services Sector
Computer Software
& hardware
6% 4% 4% 3% Telecommunications
Housing & real
6% Estate
10%
Construction
31% Activities
11% Power
Automobile Industry
12% Metallurgical
13%
Industries

Copyright 2013-2014
Petroleum & Natural
Gas
Chemicals
4
 Top Investing Countries

Mauritius
Singapore
4% 4% 3% 2% 2% USA
5%
7% UK
9% Netherlands
Japan
11% Cyprus
53%
Germany
UAE

Copyright 2013-2014
France

5
 Types of FDIs

Types of
FDI

Mergers
Greenfield and Horizontal
Investment Acquisition Vertical FDI
FDI
s s

Copyright 2013-2014
 Greenfield Investments

Greenfield Investments are the primary target of a

host nations promotional efforts.
Merits
Create new production capacity and jobs.
Transfer technology
Additional capital investments.
Demerits
Loss of market share of domestic firms.

Copyright 2013-2014
Profits flow back entirely to the multinationals
home country.
Mergers and Acquisitions

Cross-border acquisitions occur when the control of

assets an operations is transferred from a local to a

foreign company, with that local company becoming

an affiliate of the foreign company.

Copyright 2013-2014
 Horizontal FDI

Horizontal FDI occurs when a company investment

is made for conducting the similar business

operations in another country.

Copyright 2013-2014
 Vertical FDI

Vertical integration is the expansion of a firm into a

stage of the production process other than that of

the original business.

Copyright 2013-2014
SECTORIAL ANALYSIS

Copyright 2013-2014
11 22/9/2013
 FDI in various sectors

Infrastructure
Automotive
Pharmaceuticals
Service
Railways
Chemicals
Textile
Airlines

Copyright 2013-2014
THAPAR UNIVERSITY, PATIALA 12 5/6/17
 FDI in service sector

Indias service sector accounts for more than 50%

of the countrys GDP.
It makes up more than 25% employment.
Service sectors include telecommunication,
insurance, IT enabled services, insurance, etc.

Copyright 2013-2014
THAPAR UNIVERSITY, PATIALA 13 5/6/17
 FDI policy (Service sector)

100% FDI is permitted for many service sectors

like-
Real estate, construction, tourism, films,
consultancy, medical, education, advertising, etc.

Copyright 2013-2014
THAPAR UNIVERSITY, PATIALA 14 5/6/17
 FDI in Agriculture
Developments
To connect 66,800 habitations
To construct 1,46,000 Km of new rural roads
To Upgrade and modernize 1,94,000Km of
existing rural roads
To provide corpus of Rs. 8000 crore RIDF (rural
infrastructure development fund)

Copyright 2013-2014
15 22/9/2013
 FDI in Retail.WHY INDIA?

Low share of organized retailing

Increase in disposable income and customer
aspiration or demand.
Increase in expenditure for luxury items.

Copyright 2013-2014
16 22/9/2013
 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

Copyright 2013-2014
big push to other sectors like agriculture, small and
medium size enterprises.
17 22/9/2013
 FDI in Real Estate

Second-most favoured destination for FDI in the

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

Copyright 2013-2014
18 22/9/2013
 FDI in Real Estate (Why
Invest??)

India produces an estimated 2 million new

graduates
Presence in the list of top 500 sectors complied
by US taking into consideration of the growth rate.
Real estate investments in Indiayield huge
dividends.

Copyright 2013-2014
19 22/9/2013
 Tourism

Raised to $120 million.

Major source of employment.
Third largest earner of foreign exchange.
Private investments through public private
partnership.
100% FDI permitted.

Copyright 2013-2014
20 22/9/2013
 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

Copyright 2013-2014
21 22/9/2013
 Chemicals and
pharmaceuticals

Indian pharmaceutical market is 3rd largest in

terms of volume and 13th largest in terms of
value. 100% FDI is permitted in this sector.
100% FDI is allowed in Chemical sector under
automatic route.

Copyright 2013-2014
THAPAR UNIVERSITY, PATIALA 22 5/6/17
 FDI in automotive sector

FDI in automotive sector was increased by 89%

between April 2014 to February 2015.
India is 7th largest producer of vehicles in the
world with 17.5 million vehicles annually.
100% FDI is permitted in this sector via automatic
route.
Automobiles shares 7% of the India's GDP.

Copyright 2013-2014
THAPAR UNIVERSITY, PATIALA 23 5/6/17
 FDI Benefits

Economic
Growth

Linkages
and
spillover to Trade
domestic
firms

Technology
diffusion Employmen

Copyright 2013-2014
and t and skill
knowledge levels
transfer
24
 Reasons for low FDI

High Taxes
Highest import duty on imported liquor
used in hotels
Service Tax on Tour Operators
Inland Air Travel Tax

Copyright 2013-2014
FDI Policies in India (overview)

FDI Policy permits FDI up to 100 % from foreign/NRI

investorwithout prior approval in most of the
sectors. Known as the automatic route.
The FDI policies in INDIA are formulated on 4
parameters:
-Increased capital flow.
-Improved technology.
-Management expertise.
-Access to international markets.
Hence 100% inflow was allowed in sectors like

Copyright 2013-2014
Power, Renewable energy , Agriculture, mining etc.
Also sectors like insurance and defence have a cap
26 of 26% and the banking sector has cap of 49%.
22/9/2013
Final Recommendations

Attract
Quality FDI

Attract
Increase
technology
ease of
and
doing
localize
business
production

Focus on

Copyright 2013-2014
Target
Export-
specific
oriented
sectors
FDI
 Conclusions

FDI may provide better access to latest

technologies for the local economy.
FDI provides compitition to the local industries
which intern make them compitant. Hence product
quality improvement.
The increased flow of FDI in a country has given a
major boost to the country's economy .
Hence measures must be taken in order to ensure
that the flow of FDI in the country to continue to

Copyright 2013-2014
progess in all perspectives.

28 22/9/2013
 THANK YOU

Copyright 2013-2014