FOREIGN DIRECT INVESTMENT

(FDI)
 FORGIEN DIRECT INVESTMENT
• The foreign direct investment definition says the
direct investments in any productive assets in a
country by any foreign company is called foreign
direct investment or FDI.
• Foreign Direct Investment includes investments in
the infrastructure development projects including
construction of bridges and flyovers, finance
sector including banking and insurance services ,
real estate development , retail sector etc.
 Benefits and cost to host country
Benefits
• Availability of scarce factor
of production.
• Improvement in the balance
of payment.
• Building of economic and
social infrastructure.
• Fostering of economic
challenges.
• Strengthening government
budget.
Cost
• Strained balance of payment
following reverse flow.
• Dependence on the import
technology.
• Employment expatriates.
• Inappropriate technology.
• Unhealthy competition.
• Cultural and political
interfaces.
Benefits and cost to home country
Benefits Cost
• Availability of raw material. • Undesired outflow of factor
• Improvement of balance of of production.
payment. • Possibility of conflict with
• Employment generation. the host country
• Revenue to the government.
government.
• Improved political relations.
 Strategy for FDI
• FIRM-SPECIFIC STRATERGY.
• COST-ECONOMISING STRATERGY.
• STRATERGY OF ENTERING IN NEW AREAS.
• CROSS-INVESTMENT STRATERGY.
• JOINT-VENTURE WITH A RIVAL FIRM.
 Benefits
•It helps in the economic development of the particular country.

•Foreign direct investment also permits the transfer of technologies.

•It also assists in the promotion of the competition within the local input market of a

country.

•Develop the human capital resources by getting their employees to receive training on

the operations of a particular business.

•Foreign direct investment can also bring in advanced technology and skill set in a

country.

•Foreign direct investment assists in increasing the income that is generated through

revenues realized through taxation.

•It also opens up the export window .

 Disadvantages
• One of the most indirect disadvantages of foreign direct investment is that the economically

backward section of the host country is always inconvenienced when the stream of foreign

direct investment is negatively affected.

• where the host country has some sort of national secret – something that is not meant to be

disclosed to the rest of the world. It has been observed that the defence of a country has faced

risks as a result of the foreign direct investment in the country.

• Foreign direct investment may entail high travel and communications expenses.

• The differences of language and culture that exist between the country of the investor and the

host country could also pose problems in case of foreign direct investment.

• There
There is
is aa chance
chance that
that a
a company
company may
may lose
lose out
out on
on its
its ownership
ownership to
to an
an overseas
overseas company.
company.
• At times there have been adverse effects of foreign direct investment on the balance of

payments of a country.
InInIndia,
India,FDI
FDIPolicy
Policyallows
allowsfor
forInvestment
Investmentthrough
through

• Through financial alliance

• Through joint schemes and technical alliance
• Through capital markets, via Euro issues
• Through private placements or preferential
allotments .
 FDI in India is not allowed under the
following industrial sectors:

• Arms and ammunition

• Atomic Energy
• Coal and lignite .
• Rail Transport
• Mining of metals like iron, manganese, chrome, gypsum,
sulphur, gold, diamonds, copper, zinc
 Examples
• Panasonic is planning to line up US$ 200 million investment in India over the next 3 years for
setting up new units, brand positioning and upgrading its facilities.
• Japanese engineering major, Toshiba plans to put up a power boiler plant at Ennore, north of
Chennai with an initial investment of around US$ 232.91 million.
• Dell would be investing more in India to commensurate with the growth of its products.
• Intel Corp will invest US$ 40 billion in partnership with Indian IT companies to create an end-
to-end IT solution for the health sector in the country.
• HPCL and Mittal Energy will together put in US$ 81.94 billion worth investment in developing
a petrol hub.
• Havells India will bring in US$ 64.92 million as issue of shares and convertible warrants.
• Essar Power will infuse up to US$ 2 billion as foreign equity for undertaking various
downstream projects, including power and coal mining.
THANKS….