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FDI AND FII IN INDIA

[With special reference to MAURITIUS]

GROUP MEMBERS
O ASHISH JADHAV
O ROHAN ACHREKAR O KALPESH WORLIKAR O ROHAN MADANE

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59 18 36 44 57 29 38

O SHWETA TARALE
O GAURAV PIMPALE O NILESH PATIL O ROSTAN DIAS

O GAYATRI LIMBACHIYA

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What are Foreign Investors looking for?


O Good projects

O Demand Potential
O Revenue Potential O Stable Policy Environment/Political

Commitment O Optimal Risk Allocation Framework


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ADVANTAGES INDIA HAS TO OFFER


O O O O O O O O O

Stable democratic environment over 60 years of independence Large and growing market World class scientific, technical and managerial manpower Cost-effective and skilled labour Abundance of natural resources Large English speaking population Well-established legal system with independent judiciary Developed banking system and vibrant capital market Well developed accountancy, legal, actuarial and consultancy profession
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Types of Foreign Investment

WHAT IS FDI ?
Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country.

Include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.

Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the economy
O FDI can not only bring capital to an economy,

but also transfer knowledge, technology and skills, as well as generate employment and trade.
O In FDI, Business is very High.

The FDI relationship consists of a parent

enterprise and a foreign affiliate which together form a multinational corporation (MNC).
Foreign Direct Investment (FDI) is a driving force

of globalization and an important engine of economic growth.


FDI is long term investment

Developing as well as developed countries seek to

attract FDI due to its many advantages for economic development.


This does not include foreign investments in stock

markets.
Instead, FDI refers more specifically to the

investment of foreign assets into domestic goods and services.


Investment is made in physical assets

Foreign Direct Investment (FDI) is permitted as under the following forms of investmentsO Through financial collaborations. O Through joint ventures and technical

collaborations.
O Through capital markets

ADVANTAGES OF FDI
O Increase in Domestic Employment/Drop in

unemployment
O Investment in Needed Infrastructure.
O New Technology and Know How Transfer. O Increased Capital Investment. O Targeted Regional and Sectoral Development.

DISADVANTAGES OF FDI
O Technological Dependence on Foreign

Technology Sources.
O Disturbance of Domestic Economic Plans in

Favor of FDI-Directed Activities.

FOREIGN INSTITUTIONAL INVESTORS

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What is FII?????
O institutional means that the business or company

doing the investing is not a single, private individual who chooses to put money into a project or scheme.
O a foreign institutional investor (FII) is a legal entity

such as an investment fund or mutual fund that puts money into a business venture or project in a country other than the one in which the investor lives or is based.

Foreign Institutional Investors


O

FIIs can individually purchase upto 10% and collectively upto 24% of the paid-up share capital of an Indian company This limit of 24% can be increased to sectoral cap/ statutory limit applicable to the Indian company by passing a board resolution/shareholder resolution FIIs can purchase shares through open offers/private placement/stock exchange Shares purchased by FII through stock exchange cannot be sold through a private arrangement Proprietary funds, foreign individuals and foreign corporates can register as a subaccount and invest through the FII. Separate limits of 10% / 5% is available for the sub-accounts FIIs can raise money through participatory notes or offshore derivative instruments for investment in the underlying Indian securities FIIs in addition to investment under the FII route can invest under FDI route
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O O

O O

Advantages of FII
O
O O O O O O O

O O

Enhanced flows of equity capital FIIs have a greater appetite for equity than debt in their asset structure. It improve capital structures. Managing uncertainty and controlling risks. FII inflows help in financial innovation and development of hedging instruments. Improving capital markets. FIIs as professional bodies of asset managers and financial analysts enhance competition and efficiency of financial markets. Equity market development aids economic development. By increasing the availability of riskier long term capital for projects, and increasing firms incentives to provide more information about their operations, FIIs can help in the process of economic development. Improved corporate governance. FIIs constitute professional bodies, improve corporate governance.

FDI

FII 1. It is generally short-term investment 2. Investment in financial assets 3. Aim is to increase capital availability

1. It is long-term investment
2. Investment in physical assets 3. Aim is to increase enterprise capacity or productivity or change management control 4. Leads to technology transfer, access to markets and management inputs 5. FDI flows into the primary market

4. FII results in only capital inflows

5. FII flows into the secondary market


6. Entry and exist is relatively easy 7. FII is eligible for capital gain 8. Tends to be speculative
17 9. No direct impact on employment of labour and wages

6. Entry and exit is relatively difficult


7. FDI is eligible for profits of the company 8. Does not tend be speculative

9. Direct impact on employment of labour and wages

10.Fleeting interest in mgt.

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FDI
Entry Routes for Investment

Automatic route

Government route

Foreign Direct Investment Policy


FDI limits Illustrative list
Automatic Route (Illustrative)

Note:

Prior Approval (Illustrative)



Existing Airports Asset Reconstruction Companies Titanium Minerals Broadcasting (a) Cigars & Cigarettes Courier Print Media (a) Single brand retailing 100% 100% 26% 51% 100% 49% 100%

Negative List (Illustrative)



Agriculture (b) Atomic energy Retail trading (except single brand up to 51%) Lottery, betting and gambling Chit fund, Nidhi company Trading in Transferable Development Rights

NBFC (minimum capitalization norms) IT / ITes Financial services(a) Telecom Sector (74% cap)(a) Insurance (26 % cap)(a) Real Estate(a) Special Economic Zones Infrastructure Shipping Manufacturing sector Hotels and tourism

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(a) Sector specific guidelines (b) Subject to certain exceptions

Total FDI Flows in INDIA [ US $ million]


40000 35000 30000 37838 34835 27024 22826 20000 15000 10000 5000 0 6130 4029 5035 4322 8961 6051 37763

25000

Mauritius, Singapore and Cyprus are the favorite jurisdictions for investment into India

Foreign investment (FI) from Mauritius constituting 43%* of Indias total FI

TOP INVESTING COUNTRIES

SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS

TOP 10 Cities Attracting highest FDI

FII Statistics

FII Investment
200000
150000 100000 50000 0

-50000
-100000 Total (INR Cr.)

UAE 1% France 2% Germany 2% Cyprus 4% UK 5%

Total Inflows
Others 19% Mauritius 42%

Japan 4% Netherlands 4%

USA 7%

Singapore 10%

The MAURITIUS Advantage


O An offshore financial center
O Treaty based jurisdiction O Well regulated business jurisdiction with a

proud record of adherence to international best practice standards


O Favorable time zone

O Sophisticated international

telecommunication service
O Abundance of professional service

providers at a relatively low cost


O Economic and political stability O Educated and multi-lingual workforce

O Each of big 4 auditing firms have large

offices in Mauritius
O International banks including HSBC, Barclays

and Deutsche bank


O Several large fund administrators who offer

accounting, share registration and back office services


O Hybrid legal system

INVESTMENT PROTECTION
O Signed Investment Promotion & Protection
O O O O O

Agreement (IPPA) Provides for free repatriation of investment capital & returns Guarantee against expropriation Rule regarding treatment of investors Compensation for losses in case of war, armed conflict or riot Arrangements for settlement of disputes between investors and contracting states

CURRENT TAX REGIME


O According to India/Mauritius DTAA
O Income and Capital gains derived from Indian

based Investment are taxable in Mauritius O Companies are subject to corporate tax of 15% + deemed credit O Effective tax comes down to 3% or NIL O Also no capital gain tax, no withholding tax on dividends and interest paid to non-residents by Mauritius entities.

O A revised discussion paper

was released in June 2010 O Now proposed that where the tax treatment under a DTAA is more beneficial to a tax payer than the treatment under the code, the terms will prevail

However, in terms of the code, the commission may declare the tax treatment of a tax payer under a DTAA to be not applicable under general anti avoidance rules

FDI is prohibited in following sector


O Lottery Business including , online

lotteries,etc.
O Gambling and betting including casino O Manufacturing of Cigars, cheroots,

cigarillos and cigarettes, of tobacco or of

tobacco
substitutes

FDI
Entry Routes for Investment

Automatic route

Government route

FDI
SECTORAL GUIDELINES

AIRPORTS
Foreign Investment up to 100% is allowed in green field projects under automatic route Foreign Direct Investment is allowed in existing projects - up to 74% under automatic route - beyond 74% and up to 100% subject to Government approval

DRUGS & PHARMA


O FDI up to 100% is permitted under the automatic

route for manufacture of drugs and pharmaceuticals (The following is the current position)
O FDI proposal for the manufacture of licensable

drugs and pharmaceutical drugs require prior government approval

TELECOM

FDI in basic and cellular, unified access services, national/ international long distance , V-Sat, public mobile radio trunk services , global mobile personal communications services - Automatic up to 49% - FIPB beyond 49% but up to 74% Manufacture of telecom equipments Automatic up to 100%.

INSURANCE

FDI up to 26% allowed on the automatic route

However, license from the Insurance Regulatory & Development Authority (IRDA) has to be obtained
There is a proposal to increase this limit to 49%

TRADING
O 100 % FDI PREMITTED IN

FOLLOWING CASE O EXPORT O CASH AND CARRY WHOLESALE TRADING O BULK IMPORT

FOLLOWING KIND OF TRADING IS PERMITTED IN EXIM POLICY


O Companies for providing after sale service O Trading of item for social sector O Trading of high tech medical and

diagnostic item O Trading of item required specialized after sales service

Road, highways, ports and harbour


O FDI up to 100% under automatic route O For construction and maintenance of road

O Highways
O Tunnels O Ports O harbour

PRINT MEDIA

FDI upto 100% in publishing/printing scientific & technical magazines, periodicals & journals FDI upto 26% in publishing news papers and periodicals dealing in news and current affairs. All investments are subject to the guidelines issued by the Ministry of Information and Broadcasting

BROADCASTING

FDI would be 26% for news and current affairs tv channel and fm radio FDI less than 26% would be through automatic route .investment of 26% and above will require government approval

Foreign Investment limits for dth,iptv,mobile tv would be 74%

INFRASTRUCTURE

100% FDI is permitted for the following activities:


Electricity Generation (except Atomic energy) Electricity Transmission Electricity Distribution Mass Rapid Transport System Roads & Highways Toll Roads Vehicular Bridges Ports & Harbors Hotel & Tourism

IMPORTANCE OF FOREIGN INVESTMENT


HELPS IN GETTING NECESSARY

IMPORTS
HELPS IN INCREASING A COUNTRYS

EXPORT
HELPS IN INCREASE THE REAL INCOME TRANSFER OF TECHNOLOGY

INCREASE COMPETITION AND BREAK

DOMESTIC MONOPOLIES

SHIFT THE BURDEN OF RISK OF AN

INVESTMENT

ASSOCIATED WITH HIGER GDP

GROWTH

LIMITATIONS OF FOREIGN CAPITAL


Capacity of the receiving country to use the foreign capital effectively Private foreign capital flow Create problems for domestic Result in the dangerous situation Unfavorable effect on the balance of payment Interferes in the national politics

FACTORS CAUSING FLUCTUATIONS IN FDI FLOW


1.Changes in business cycle ,stock market 2.Fluctuation due to recession 3.Limited investible funds 4.Market growth 5.Mergers and Acquisitions

MEASURES TAKEN BY GOVERNMENT


O Devaluation of Rupee

O Investors protection treaty


O Investment promotion O Reducing time gap O Openness to all sectors O Opened to registered partnership firms

FDI in Retail
O Current
Single brand retail -51 % Multi brand NIL O Proposed

FDI in Retail : Impact on INDIA ?

Issues related to inflow of FDI in Retail


O Will FDI in Retail Guarantee

Quality???

Will Farmers benefit???

Will it have impact on?


O Intermidiaries

O Kirana Stores

Will it help in reducing inflation?


O Supply will increase O Prices will come down O But wont have substantial effect on

inflation O Caused by many other reasons

How to get a WIN WIN Situation???


O Safegaurds and conditions to maximise the good

side and minimise the risks


O

Over regulation Ensure they get better environment to operate Create a watching body to see farmers are not exploited and get fair prices Policy for Predatory pricing Upgrade, modernize existing retail system alongside

THANK YOU..!!!