FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) or foreign investment refers to

long term participation by country A into country B.It usually
involves participation in management, joint-venture,
transfer of technology and expertise.There are two types of FDI:
inward foreign direct investment and outward foreign direct
investment, resulting in a net FDI inflow (positive or negative) and
"stock of foreign direct investment", which is the cumulative number
for a given period. Direct investment excludes
investment through purchase of shares.
 Need of FDI
Ø Improvement of Economical infrastructure
Ø Technological Up gradation
Ø Managing Balance of Payments
Ø Exploitation of Natural Resources
Ø Scope of Employment
Ø Improvement of export competitiveness
Ø Benefit to consumers
Ø
Ø

 Opportunities here

Ø Stabilized democratic government

Ø Low penetrated market
Ø Low labor cost
Ø Skill population
Ø Availability of resources
Ø Supportive policies and rules
Ø

V fdsff
ROUTES FOR FOREIGN DIRECT
INVESTMENT


Routes available for FDI:



 AutomaticRoute
 FIPB Route
 CCFI Route
 Types of FDI

 Greenfield investment
 Mergers & aquisition
Sector Wise Limits of investments
 Banking - 74%
 Non-banking financial companies (stock broking, credit cards,
financial consulting, etc.) - 100%
 Insurance - 26%
 Telecommunications - 74%
 Private petrol refining - 100%
 Construction development - 100%
 Coal & lignite - 74%
 Trading - 51%
 Electricity - 100%
 Pharmaceuticals - 100%

 Transportation infrastructure - 100 %
 Tourism - 100%
 Mining - 74%
 Advertising - 100%
 Airports - 74%
 Films - 100%
 Domestic airlines - 49%
 Mass transit - 100%
 Pollution control - 100%
 Print media - 26% for newspapers and current events,
100 % for scientific and technical periodicals



Forbidden Territories
FDI is not permitted in the following industrial sectors:


Ø Arms and ammunition.

Ø Atomic Energy.
Ø Railway Transport.
Ø Coal and lignite.
Ø Mining of iron, manganese, chrome, gypsum, sulpher, gold,
diamonds, copper, zinc.
Ø Gambling and Betting
Ø Lottery Business
Ø Atomic Energy
Ø Agriculture (with certain exceptions) and Plantations (Other
than Tea plantations
Ø


 ADVANTAGES of FDI
 Causes a flow of money into the economy which stimulates
economic activity.
 Employment will increase.
 Long run aggregate supply will shift outwards.
 Aggregate demand will also shift outwards as investment is a
component of aggregate demand.
 It may give domestic producers an incentive to become more
efficient .
 The government of the country experiencing increasing levels
of FDI will have a greater voice at international summits as
their country will have more stakeholders in it.

 DIS-ADVANTAGES of FDI

 Inflation may increase slightly .



 Domestic firms may suffer if they are relatively

uncompetitive .

 If there is a lot of FDI into one industry e.g. the automotive
industry then a country can become too dependent on it and
it may turn into a risk that is why countries like the Czech
Republic are “seeking to attract high value-added services
such as research and development (e.g.) biotechnology)”.

FDI Inflows- Sector -wise

Electrical equipment including software moves to

over all 2nd position in Nov 2006.

Services sector shows spurt in growth and the top

sector attracting FDI – moving up from the third
position.

Spurt in FDI in Real Estate causes the

construction sector to the third position in Nov
2006.
 F D I In f lo w - In d ia : 2 0 0 1 - 0 7 N e t F II in t o In d ia : 2 0 0 1 - 0 7
1 8 ,0 0 0 12
1 5 ,7 3 0
1 6 ,0 0 0 1 0 . 0 01 0 . 2 0
10 9 .4 0
1 4 ,0 0 0
1 2 ,0 0 0 8 6 .7 2
1 0 ,0 0 0
6
USD Million

8 ,0 0 0

USD Billion
5 ,5 4 6
6 , 0 0 04 , 2 2 2 4
3 ,7 5 5
4 ,0 0 0 3 , 1 3 4 2 ,6 3 4 1 .8 0
2
2 ,0 0 0 0 .6 0
0 0
2 0 0 1 - 20 02 0 2 - 20 03 0 3 - 20 04 0 4 - 20 05 0 5 -20 06 0 6 - 0 7 2 0 0 1 2- 0 20 2 2- 0 30 3 2- 0 40 4 2- 0 50 5 2- 0 06 6 - 0 7
Return on the Investments in India (2006
Q1)
Market PE P/B Ratio RoE (%) India is ranked second in AT Kearney FDI
Ratio confidence index
India 16.1 4.53 22
China 10.62 2.06 17
Indonesia 10.26 3.09 NA

Korea 9.85 1.84 16 Telecom and Electronics topped the list

Malaysia 13.21 1.82 16 of inward FDI

Taiwan 12.17 2 11
Thailand 9.84 2.32 23 FDI inflow for the period 2006-07 witnessed
a growth of 180 percent over the same period
EM Asia 11.19 2.12 15 last year
Latin America9.35 2.46 18

Mauritius has been the largest

EM Europe 10.9 2.39 15
contributor towards FDI into
India…..
World FDI senerio
 Present global senerio

Global flows of foreign direct investment (FDI)

have halved in the last two years (09-10), and in the process
emerging markets have edged ahead of developed markets as the
major destination. As higher-growth economies, emerging markets
have proven better than developed markets at attracting FDI during
the global downturn--with the notable exception of eastern Europe,
which continues to suffer. Surveys underline that, for developed-
market companies, FDI tends to pay off handsomely. Global FDI
flows are forecast to grow again this year, with emerging Asia in
the vanguard, but the volume is unlikely to match 2007’s US$2trn
level until 2014.
FDI inflows US$ bn
2008 2009 2010 2011 2012 2013 2014
World total 1,718.4 1,019.7 1,302.5 1,519.0 1,709.4 1,871.2 2,009.0
% change -17.4 -40.7 27.7 16.6 12.5 9.5 7.4
Developed 894.3 488.1 619.9 734.8 837.8 931.7 996.7
countries
% change A-33.2 -45.4 27.0 18.5 14.0 11.2 7.0
Emerging 824.1 531.6 682.6 784.2 871.7 939.4 1,012.3
markets
% change 11.0 -35.5 28.4 14.9 11.1 7.8 7.8
of which:
Sub-Saharan 46.4 28.6 36.6 39.0 45.1 45.4 46.7
Africa
% change 22.7 -38.3 27.9 6.6 15.6 0.6 2.9
Middle East & 98.7 62.6 77.0 87.3 91.6 98.7 105.6
North Africa
% change 25.2 -36.6 23.0 13.4 5.0 7.7 7.1
Developing Asia 331.2 246.4 319.6 372.0 414.8 457.6 496.7

% change 8.2 -25.6 29.7 16.4 11.5 10.3 8.5

Latin America & 144.3 88.2 114.0 127.6 138.3 149.1 160.0
Caribbean
% change 12.0 -38.9 29.2 12.0 8.4 7.8 7.3
Eastern Europe 180.6 95.9 122.7 143.1 150.1 155.6 164.0

% change 9.5 -46.9 27.9 16.7 4.9 3.7 5.4

% share 52.0 47.9 47.6 48.4 49.0 49.8 49.6

developed
countries
% share 48.0 52.1 52.4 51.6 51.0 50.2 50.4
emerging
markets

% of GDP
World 2.9 1.8 2.1 2.4 2.5 2.5 2.5
Developed 2.2 1.3 1.6 1.8 2.0 2.1 2.1
countries
Emerging 3.9 2.7 3.0 3.1 3.1 3.0 2.8
markets
Source: Economist Intelligence Unit