Managerial economics-II presentation

Topic :-Foreign Direct Investment(FDI)

Stewar t Bh av esh Mo nit Kave shna Sor ab h Vi ka s Ari f

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Overview of the project

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. They are usually non volatile in nature. Preferred over other forms of external finance because they are non debt creating. Their returns usually depends on the performance of the project.

WHY FDI?

Benefits
Economic Growth Linkages and spillover to domestic firms

Trade

Technology diffusion and knowledge transfer

Employment and skill levels

Limitations
Fluctuation in value of home currency Inflation Compromising with soveigernity

Environment and natural cost.

Greater competition for small and infant industries

Investing in India Entry Routes

Foreign Company has the following options to set up business operations in India :

100% FDI Permitted In India

Arms and ammunition.

Housing and Real Estate Business

Atomic Energy.

Agricultural or plantation activities

FORBIDDEN TERRITORIES

Railway Transport.

Lottery Business

Coal and lignite.

Mining

Liberal, largest democracy, political stability

India An FDI Destination

Highest rates of return on investment

World's fourth largest economy & second largest pharmaceutical industry

Contd..

Factors affecting FDI

Profitability Costs Of Production Economic Conditions Government Policies Political Factors

Impact of FEMA on FDI

As the third-largest economy India is a preferred destination for foreign direct investments (FDI).

Indias recently liberalized FDI policy permits up to a 100% FDI stake in ventures.
Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and FDI. During past few years number of changes was approved on the FDI policy to remove the cap in most of the sectors. Restrictions will be relaxed in sectors as diverse as civil aviation, construction development, industrial parks, commodity exchanges, petroleum and natural gas, credit-information services, Mining etc.

Contd.

The future of Indian economy is brighter because of its huge human resources, rapidly upcoming service sector, availability of large number of competent professionals, vast market for every product, increasing impact of consumerism, absence of controls and licenses, interest of foreign entrepreneurs in India and existence of four hundred million middle class people. Today, India provides highest returns on FDI than any other country in the world. Overall we can say that FEMA had a great influence on Economic growth of the country & it will remain for the coming years as well.

FDI policy in India

FDI is not allowed in the sectors of arms and ammunitions, atomic energy, railway system, extraction of coal and lignite and mining industry

In infra-structure development, FDI is allowed up to 100% equity participation, with the capping amount as Rs.1500 crores In finance sector, FDI is allowed up to 40%
In telecom industry, FDI is allowed up to 49%

IMPACT OF FDI IN INDIA of growth and Enabled India to achieve a high degree
development.
A number of projects have been announced in areas such as electricity generation, distribution and transmission, as well as the development of roads and highways, with opportunities for foreign investors. The Indian national government also provided permission to FDIs to provide up to 100% of the financing required for the construction of bridges and tunnels, but with a limit on foreign equity of INR 1,500 crores, approximately $352.5m.

Sectors attracting highest FDI equity inflows 2%

3% 4% 21% 4%

2%

SERVICES SECTOR

COMPUTER SOFTWARE& HARDWARE

TELE- COMMUNICATIONS HOUSING & REAL ESTATES CONSTRUCTION ACTIVITIES

7%

POWER

AUTOMOBILE INDUSTRY*

8% 8%

9%

METALLURGICAL INDUSTRIES PETROLEUM & NATURAL GAS CHEMICALS

The Trends In FDI Inflow To India Since 1991

27329 25609 24573

15725

5975 165 393 654 1374 2141 2770 3682 3083 2439 2908 4222 3134 2634 3754

5772

US $

REGIONS NOT INDICATED PATNA GUWHATI KANPUR BHUBANESHWAR BHOPAL COCHI JAIPUR PANAJI CHANDIGARGH KOLKATTA HYDERABAD CHENNAI AHEMADABAD BANGLORE NEW DELHI MUMBAI 0% 5% 10% 15% 20% 25% 30% 35%

Regional disparities in FDI equity inflows

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