FDI and FII investments rules, are

they good,
do they have an impact on the Rupee/
Dollar rate

Presented By:
Bhupendra Choubisa
06
Jitesh Jain 13
Rishon Bhastekar
32
Shoeb Pathan
40
 Types of Inflows
TYPES OF INFLOWS

Foreign Direct Investment

Foreign direct investment (FDI) in its classic

 ROUTES OF
FDI

AL
OV
P R
S
AP TE
O U
T W RO
 ROUTES FOR FOREIGN DIRECT
INVESTMENT

Ø Automatic Route

No prior Government approval is required if the

investment to be made falls within the sectoral
caps specified for the listed activities. Only filings
have to be made by the Indian company with the
concerned regional office of the Reserve Bank of
India (“RBI”) within 30 days of receipt of
remittance and within 30 days of issuance of
shares
Ø FIPB Route

Investment proposals falling outside the

automatic route would require prior Government
approval. Foreign Investment requiring
Government approvals are considered and
approved by the Foreign Investment Promotion
4
Illustrative List of Sectors Under Automatic
Route for FDI Upto 100%
Ø Most manufacturing activities
Ø Non-banking financial services
Ø Drugs and pharmaceuticals
Ø Food processing
Ø Electronic hardware
Ø Software development
Ø Film industry
Ø Advertising
Ø Hospitals
Ø Pollution control and management
Ø Management consultancy
Ø Computer related Services
Ø Research and Development Services
Ø Construction and related Engineering Services
Ø Pollution Control and Management Services
Ø Health related & Social Services
Ø Travel related services
 FDI Prohibited Sectors

 
FDI is not permissible in the following cases
 
Ø Gambling and Betting, or
Ø Lottery Business, or
Ø Business of chit fund
Ø Housing and Real Estate business.
Ø Trading in Transferable Development Rights (TDRs)
Ø Retail Trading
Ø Atomic Energy
 FDI - SECTORAL GUIDELINES
under FIPB Route
Ø AIRPORTS

Ø Foreign Investment upto 100% is allowed in green

field projects under automatic route
Ø Foreign Direct Investment is allowed in existing
projects
- upto 74% under automatic route
- beyond 74% and upto 100% subject to
Government approval
 
Ø TELECOM

- Automatic upto 49%

- FIPB beyond 49% but upto 74%
 FDI - SECTORAL GUIDELINES
under FIPB Route
Ø INSURANCE

FDI upto 26% allowed on the automatic route

However, license from the Insurance Regulatory &
Development Authority (IRDA) has to be obtained
 
Ø PETROLEUM

For petroleum refining activity 100% FDI is

permitted in Indian Private Companies under
automatic route and upto 26% FDI is permitted in
Public Sector Undertakings with Government
approval
 FDI - SECTORAL GUIDELINES
under FIPB Route
Ø PRIVATE SECTOR BANKING

Foreign Investment upto 74% is permitted from

all sources (FDI +FII) under the automatic route
subject to guidelines for setting up of
branches/subsidiaries of foreign banks issued by RBI
from time to time.

Ø PRINT MEDIA

FDI upto 26% in publishing news papers and

periodicals dealing in news and current affairs
subject to verification of antecedents of foreign
investor and keeping editorial and management
control in the hands of resident Indians
 Advantages of FDI
Ø Large and growing market
Ø World class scientific, technical and managerial manpower
Ø Cost-effective and highly skilled labor
Ø Access to global market place for domestic players
Ø Contribution to exports growth
Ø Large availability of capital
Ø Increase domestic savings and investments
Ø Increase in Forex Reserves
 Disadvantage of FDI
Ø Crowding of local industry

Ø Loss of control

Ø Repatriation of profits ( dividends by

investor)

Ø Effects on local culture / sentiments – socio

cultural effects
Foreign Institutional Investor
(FII) 
Foreign Institutional Investment is used to denote an investor -
mostly of the form of an institution or entity, which invests money in
the financial markets of a country different from the one where in
the institution or entity was originally incorporated.
FII investment is frequently referred to as hot money for the
reason that it can leave the country at the same speed at which it
comes in.
Agencies Regulating FII in India

Ø RBI: the apex bank

Ø FIPB: reviews all foreign investment proposals

Ø SEBI: which regulates India's capital markets

Difference between FDI
and FII
 Advantages of FII

Ø Trading and delivery volume raises

Ø Volatility will be curtailed

Ø More liquidity will created

Ø Standard will be improved because of

investors quality
 Disadvantages
of FII
Ø Problems of Inflation.

Ø Hot Money.

Ø False representation of economy.

Ø Cannot be utilized for long term.

Ø Problem for small investor.

 Areas affected by FII
Ø Stock market

The FII’s profit from investing in emerging financial

stock markets, say the Indian stock Exchange. If the cap on
FII is high then they can bring in lot of funds in the
countries stock markets and thus have great influence on
the way the stock markets behaves, going up or down. The
FII buying pushes the stocks up and their selling shows the
stock market the downward path. So this is how
influencing FII can be, as is seen in the present downtrend
of the stock markets in India courtesy heavy FII selling.

Ø Exchange Rates
The simple way of understanding is through Demand
 Areas affected by FII

Ø Exports & Imports

The FII lead to appreciation of the currency, they lead to
the exports industry becoming uncompetitive due to the
appreciation of the rupee. For e.g. if 1 USD = Rs.40 and a soap
costs 1 USD. Now when the rupee appreciates 1 USD = Rs. 20,
I will have to sell the same soap to the US for 2 US Dollars in
order to sustain the same income that I have been making i.e.
Rs.40. Thus excess FII fund inflow in the country can also
make a negative impact on the economy of the country.

Ø Inflation
The huge amount of FII fund inflow into the country
creates a lot of demand for rupee, and the RBI pumps the
amount of Rupee in the market as a result of demand created
THANK
YOU