FOREIGN DIRECT INVESTMENT

Submitted By : Subashini Sundar

ISBR, Business School

FOREIGN DIRECT INVESTMENT

Contents
 Introduction  Ways

of Foreign Investment in India.  The Entry Strategy  Benefits of FDI  Disadvantages of FDI  Exit Issues  Difference between FDI & FIIs

INTRODUCTION
y

Foreign Direct Investment is any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor. FDIs require a business relationship between a parent company and its foreign subsidiary FDI stocks now constituting28% of the global GDP

WAYS OF INVESTMENT IN INDIA

The following are the two major ways of foreign capital investment in India:
Foreign Direct Investment (F.D.I.). Foreign Institutional Investors (F.I.I.s)

The Entry Process

Investing in India

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

Prior Permission By exception Approval of Foreign Investment Promotion Board needed. Decision generally within 4-6 weeks
5

Other modes of FDI

GDRs,ADRs & FCCBs y Indian Companies are allowed to raise equity capital in the international market through the issue of GDRs/ ADRs/FCCBs.
y

No end-use restrictions on GDR/ ADR/ FCCB issue proceeds Except x Investment in real estate x Stock markets.

BENEFITS OF FDI
y

Economic development of the host. Transfer of technology. Development of human capital resources. Creation of jobs. Opening export window.

DISADVANTAGES OF FDI
y

Company may lose ownership Difference in language and culture Country secrets may be disclosed Policies adapted may not be appreciated

EXIT ISSUES
y

Transfer of shares from non-resident to nonresident does not require RBI approval for pricing. Transfer of shares from non-resident to resident does not require any FIPB Approval, though RBI approval is required for pricing Pricing as per FEMA listed and unlisted securities. RBI permission not required if sale through Stock Exchange.

DIFFERENCE BETWEEN FDI & FIIs

FDI is an investment that a parent company makes in a foreign country.. .
y

FII is an investment made by an investor in the markets of a foreign nation FII can enter the stock market easily and also withdraw from it easily

. FDI cannot enter and exit that easily

DIFFERENCE BETWEEN FDI & FIIs

y

Foreign Direct Investment targets a specific enterprise. The Foreign Direct Investment is considered to be more stable.

The FII increasing capital availability in general. The investment made by Foreign Institutional Investors is less stable.

Present Picture
y

India: Fourth largest economy in terms of Purchasing Power Parity. Tenth most industrialized economy. GDP growth rate of 8.1% - Second highest in the world. Considerable improvement in FDI inflows. FII inflows:
For the period, July 2003 Jan 2004 FII inflow has exceeded USD 7 bn, which is more than the cumulative FII inflow in the last five years.

y y

y y

Still a big gap between India and China & Luthra Law Offices Luthra

12

THANK YOU