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International Financing - FDI

It is an investment made by a foreign individual or company in productive capacity of another country. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset. Why India adopted an FDI-friendly regime To bring down the chronic current account deficit by obtaining stable long term FDI To facilitate non-debt creating foreign capital inflows To develop the stock market Providing Indian enterprises an option of having capital at lower cost To improve the corporate governance structure of Indian enterprises

International Financing - FDI


How FDI benefited Indian Companies.. Technology and knowledge transfer Enhanced production capabilities Introduction of modern managerial techniques Access to marketing networks Offers competition How India succeeded in attracting FDI.. FDI friendly policy Foreign investment can now take advantage of the automatic approval route without seeking government approval Concomitant steps to remove hurdles in the path of foreign investors both at the stage of entry and later in the process of establishing the venture.

International Financing - FDI


Trend of FDI Inflows to India for Financial Years 2000 2012
FDI Inflows to India (Amount US$ million)
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 FDI Inflows to India (Amount US$ million)

FDI is considered as the safest type of external finance by developing countries FDI gained momentum in India in the last two decade FDI in India has increased manifold since 2001. From US$ 4,029 million in 2001, it increased to US$ 32,901 in year 2011

International Financing - FDI


FDI Inflow (2000 to 2011) - Sector wise

OTHERS 32%

SERVICES SECTOR 20%

TELECOMMUNICATION S 8%
COMPUTER SOFTWARE & HARDWARE 7%

PETROLEUM & NATURAL GAS 2% METALLURGICAL INDUSTRIES 4% AUTOMOBILE INDUSTRY 4%

POWER 4%

HOUSING & REAL ESTATE 7% DRUGS & PHARMACEUTICALS 6%

CONSTRUCTION ACTIVITIES 6%

Among sectors, Service sector tops the chart of FDI inflows accounting 20% of the total inflows, followed Telecommunications (8%), Computer Software & Hardware (7%) and Housing and Real Estate sector (7%)

International Financing - FDI


Sector wise comparison in inflows for 2009-10 & 2010-11
25,000 200.0 150.0 100.0 20,000

USD million

15,000 50.0 10,000 0.0

5,000

-50.0 -100.0 DRUG HOUSI CONS S& NG & TRUCT PHAR REAL ION MACE ESTAT ACTIVI UTICA E TIES LS 14,027 5,600 -60.1 13,469 4,979 -63.0 1,006 961 -4.5 AUTO METAL MOBIL LURGI E CAL INDUS INDUS TRY TRIES 5,893 5,864 -0.5 1,999 5,023 151.3 PETRO LEUM & NATUR AL GAS 1,297 2,543 96.1

COMP UTER SERVI TELEC SOFT CES OMMU WARE SECTO NICATI & R ONS HARD WARE 2009-10(USD Million) 19,945 12,270 4,127 2010-11(USD Million) 15,053 7,542 3,551 % Change to total Inflows -24.5 -38.5 -14.0

POWE R

6,138 5,796 -5.6

International Financing - FDI


FDIs from countries Mauritius, Singapore, Japan, USA & UK accounts 60% of the total inflows into the country. Overall FDI into almost all the sectors had declined in the year 2010-11, a reason for which could be the global situation, inflation, increasing fiscal burden etc The main determinants of FDI in developing countries are inflation, infrastructural facilities, debts, burden, exchange rate, FDI spillovers, stable political environment etc