PRESENTATION ON

FDI & FII

Presented To:
Ms. Pallavi Dawra
Presented
By:
Parv Mahajan
Vinod Kumar

ECONOMIC INDICATOR

GDP (IN Rs crore)

GDP (IN Rs crore)
5574449

6164178

4947857
3239224

2004-05

3706473

2005-06

4283979

2006-07

2007-08

2008-09

2009-10

GDP Growth Rate (in %)

GDP Growth Rate (in %)

9.5

9.7

9.2

6.9

2004-05

6.7

2005-06

2006-07

2007-08

2008-09

7.2

2009-10

Inflation Rate
Chart Title
Inflation (WPI)

Inflation (CPI )

8.4
6.7

6.5
3.8

4.4 4.4

5.4

11.4

9.1

6.2
4.7
1.6

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Export and Import

Chart Title
Exports (US$ Mn.)

Imports (US$ Mn.)

307651
257629

190670
166162
157056
128888
118908105152
85206

2004-05

2005-06

2006-07

2007-08

189001

193820
117580

2008-09

2009-10

Trade Balance
Trade Balance (US$ Mn.)
0
2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

-20000

-40000

-60000

-80000

-100000

-120000

-140000

Trade Balance (US$ Mn.)

Definition of FDI
Foreign direct investment is that investment, which is made to serve the
business interests of the investor in a company, which is in a different
nation distinct from the investor's country of origin.

The parent enterprise through its foreign direct investment effort seeks to
exercise substantial Control over the foreign affiliate company.

Exp. - An American company taking a majority stake in a company in

India.

Modes of FDI
1) By Direction

Inward

Outward
2) By Target

Mergers and Acquisitions

Horizontal FDI

Vertical FDI
3 )By Motive

Resource-Seeking

Market-Seeking

Efficiency-Seeking

FDI Investment Schemes

Available Financial Instruments

Equity Shares, Compulsorily Convertible Preference
Shares and compulsorily Convertible Debentures.
Not Available to Investors who are
Citizens of Pakistan OR Entities of Pakistan
Available with approval of FIPB (AP (DIR) No.22
dt.19/12/2007)
To Citizens & Entities of Bangladesh

Factors Affecting FDI

Financial incentives (Funds from local Government)
Fiscal incentives (Exemption from import duties)
Indirect incentives (Provides land and other resources)
Political stability
Market potential & accessibility
Large economy
Market size

FDI in India
FDI
Amount in US bn $

%age growth over

29.89

27.92

22.08

8.96
4.03

6.13

5.04

146.40%
40.00%48.10%
35.40%

52.10%
FY 2001

FY 2002

4.32

6.05

FY 2003

FY 2004

-14.20%
-17.90%

FY 2005

FY 2006

FY 2007

FY 2008

FY 2009 (till dec.)

SHARE OF TOP INVESTING COUNTRIES - FDI INFLOWS (US$ Mn.)

Rank

Country

Total 2000 to
2009

% of
Total of all
Countries

1.

Mauritius

39,379

44

2.

Singapore

8,071

3.

U.S.A

6,508

4.

U.K

5,289

5.

Netherlands

3,701

5.

Cyprus

2,579

6.

Germany

2,379

7.

France

1,233

Share of countries
CONTRIBUTION IN FDI (in %)
MAURITIUS
U.K.
CYPRUS

SINGAPORE
JAPAN
OTHERS

22%
4%
4%
4%
5% 8%

U.S.A.
NETHERLANDS

44%

9%

Investing in India Entry Routes

Investing in India

Automatic Route

Prior Permission
(FIPB)

General rule
No prior permission
required

By exception
Prior Government
Approval needed

Only information to the

Reserve Bank of India
within 15 days of inflow/
Issue of shares

Decision generally
Within 4-6 weeks

FDI Limit in Different Sector

Sector/Activity

FDI Cap/Equity

Entry Route

Airports

100%

Automatic

Construction
Development

100%

Automatic

Petroleum & Natural

Gas
PSUs) FIPB
Private Automatic

(b) Refining

26%
(For
100%
(
companies)

Other than Refining

100%

Automatic

74%

Automatic up to 49%

100%

Automatic

Telecommunication
Basic and
cellular;STD/ISD
Manufacture of
telecom equipment
Power ( Except Atomic
energy); regulations
transmission,
distribution and Power

Sectors attracting highest FDI Equity Inflows

Ranks

Sector 200607
(AprMar)

1.

SERVICES
SECTOR
(fin& nonfinancial)
COMPUT.
SOFT &
HARD.

21,047
(4,664)

26,589
(6,615)

28,411
(6,116)

16,566
(3,438)

101,019
(22,687)

22 %

11,786
(2,614)

5,623
(1,410)

7,329
(1,677)

2,763
(575)

42,259
(9,529)

9%

3.

TELE
COMMUN
ICATIONS

2,155
(478)

5,103
(1,261)

11,727
(2,558)

10,811
(2,223)

39,179
(8,600)

8%

4.

HOUSING
& REAL
ESTATE

2,121
(467)

8,749
(2,179)

12,621
(2,801)

10,565
(2,189)

34,348
(7,701)

7%

5.

CONSTRU
CTION
(inroads &
highways)

4,424
(985)

6,989
(1,743)

8,792
(2,028)

8,380
(1,754)

30,557
(6,945)

7%

2.

200708
(AprMar)

200708
(AprMar)

200708
(AprMar)

Cum
Inflows
Till
Nov09

% of
total
Inflow
s

Advantages of FDI

Economic growth
Trade
Employment and skill levels
Technology diffusion and knowledge transfer
Linkages and spillover to domestic firms
Improved technology.
Management expertise.
Access to international markets

Prohibited Sectors For FDI

Gambling and betting

Lottery Business

Atomic Energy

Retail Trading

Agricultural or plantation activities of Agriculture

(excluding

Floriculture, Horticulture, Development of Seeds, Animal

Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under
controlled conditions and services related to agro and allied sectors) and
Plantations other than Tea Plantations)

Foreign Institutional Investor

An investor or investment fund that is from or

registered in a country outside of the one in
which it is currently investing.
Institutional investors include
hedge funds,
insurance companies,
pension funds and mutual funds.

Entities / funds eligible to get registered as FII:

Pension Funds
Mutual Funds
Insurance Companies
Investment Trusts
Banks
Endowments
Foundations
Charitable Trusts / Charitable Societies

Parameters on which SEBI decides FII applicants

eligibility
Applicants track record, professional competence,
financial soundness, experience,
general reputation of fairness and integrity. (The applicant
should have been in existence for at least one year)
whether the applicant is registered with and
regulated by an appropriate Foreign Regulatory
Authority in the same capacity in which the application is
filed with SEBI
Whether the applicant is a fit & proper person.

Indian stock Market

Year wise FII

Chart Title
100000
80000
60000
40000
Axis Title

20000
0
-20000
-40000
-60000

YEAR
FII in Rs Cr.

Relation among Exchange Rate, Sensex, FII

25000

20000

FII

15000

10000

Sensex

5000

Exchange Rate
0

-5000

-10000

-15000

Foreign Institutional Investor

Foreign Institutional Investors can individually
purchase up to 10% and collectively up to 24% of
the paid up share capital of any company.
This limit of 24% can be increased to sectoral cap/
statutory limit applicable to the Indian company by
passing Board or shareholder resolution.
FIIs can purchase shares through open offer/ private
placement/ stock exchange.
shares purchased by FII through stock exchange
cant be sold through a private arrangement.

Positives and Negatives of FII

Advantages
Unavailability of Corporate
Debt
Increase Forex Reserve
Increase Domestic Savings
and Investments
Large Availability of Capital

Disadvantages
Problem of inflation
Reduces flexibility of Policy
makers
Hot Money
False

representation

Economy
Cant be used for long term
Problems for small investors

of

Differences..
FDI
FDI

is

when

foreign

FII
FII

is

when

foreign

company brings capital into a

company buys equity in any

company or economy to set up

company

a production or some other

market.

through

stock

facility.
FDI gives some CONTROL in

operation of foreign company

to the foreign company

FII does not give any control

in

operation

company

of

foreign

Contd
FDI
FDI involves in direct
production activity and is
long term in nature.
It enables a degree of
control in the company.
FDI brings long term
capital.

FII
FII is mostly the short term
investment mostly in
financial market.
It does not involve in degree
of control in the company.
FII brings short term capital.