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INTRODUCTION
The Indian economy has reached in the orbit of high rate of economic growth. It is being widely acclaimed and considered as an emerging global economic power. The rate of growth recorded during the period 1950-51 to 2006-07 clearly indicated a tendency of steady upward trend. However, the decade of 80's emerged as a beginning of the high rate of economic growth or at least a dramatic departure from the past growth performance. This tendency had continued in the nineties and further growth stimulus has occurred in the early 21st century. Foreign direct investment 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. As the third-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI). India's recently liberalised 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. The upward moving growth curve of the realestate sector owes some credit to a booming economy and liberalized FDI regime. A number of changes were 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. 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.

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The Indian economy is the third largest in the world as measured by Purchasing Power Parity, with a gross domestic product of US $3.611 trillion. When measured in USD exchange-rate terms, it is the 10th largest in the world, with a GDP of US $800.8 billion (2006). India is the second fastest growing major economy in the world, with a GDP growth rate of 8.9% at the end of the first quarter of 2006-2007. However, India's huge population results in a per capita income of $3,300 at PPP and $714 at nominal. The Indian economy is diverse and encompasses agriculture, handicrafts,

manufacturing, textile, and a multitude of services. Although two-thirds of the Indian workforce still earn their livelihood directly or indirectly through agriculture, service sector is a growing one and are play an increasingly important role of India's economy. The advent of the digital age, and the large number of young and educated populace fluent in English, is gradually transforming India as an important 'back office' destination for global (multinational) companies for the outsourcing of their customer services and technical support. India is a major exporter of highly talented workforce in software and financial services, and software engineering. India adopted a socialist-inspired approach for most of its independent history, with
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strict government control over private sector participation, foreign trade, and foreign direct investment. However, since the early nineties, India has gradually opened up its markets through economic reforms by reducing government controls on foreign investment. The privatization of publicly owned industries and the opening up of some sectors to private and foreign investors has proceeded slowly amid political debate. India faces a burgeoning population and the challenge of reducing social and economic inequality. Even though Poverty remains a serious problem, it has declined considerably since independence, mainly due to the green revolution and economic reforms. FDI up to 100% is allowed under the automatic route in all activities/sectors except the sectors, which will require approval of the Government. The question that begs for an elaboration is that is high growth and inflows of FDI solve structural imbalance of Indian economy and will it succeed in improving the lot of bottom section of the Indian economy, which are living in abysmally poor socio-economic conditions in the countryside. The employment elasticity in the agriculture and industrial sector has gone down in the post-reform period, therefore, the creation of employment opportunities will be a gigantic task for the policy makers. FDI has come in the most capital-intensive sectors; therefore, the required employment opportunities could not be created especially for the manual and the semi skilled labor. High skilled workforce gained substantially. That is why high growth is called urban centric and thus has developed a wedge between the urban and rural economy. There is urgent need to fill this void. The process of Policymaking has matured in the democratic Indian polity since the independence. It is thus predicted that the growing problems will receive mature response and policy will be articulated in such a way to use FDI the way China has used to enhance economic growth while taking more and more investment to industrialize the rural sector of the Indian economy.

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2. Benefits of Foreign Direct Investment

Attracting foreign direct investment has become an integral part of the economic development strategies for India. FDI ensures a huge amount of domestic capital, production level, and employment opportunities in the developing countries, which is a major step towards the economic growth of the country. FDI has been a booming factor that has bolstered the economic life of India, but on the other hand it is also being blamed for ousting domestic inflows. FDI is also claimed to have lowered few regulatory standards in terms of investment patterns. The effects of FDI are by and large transformative. The incorporation of a range of well-composed and relevant policies will boost up the profit ratio from Foreign Direct Investment higher. Some of the biggest advantages of FDI enjoyed by India have been listed as under:

2.1) Economic growth This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country.

2.2) Trade Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country.

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5) Linkages and spillover to domestic firms Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. 2. 5 . 2. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market.2.4) Technology diffusion and knowledge transfer FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. It helps in developing the know-how process in India in terms of enhancing the technological advancement in India.3) Employment and skill levels FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India.

apparels. Foreign direct investment in India As the third-largest economy in the world in PPP terms. Although India has always held promise for global investors. The size of the middle-class population at 300 million exceeds the population of both the US and the EU. but its rigid FDI policies were a significant hindrance in this context. India is a preferred destination for foreign direct investments (FDI). as a result of a series of ambitious and positive economic reforms aimed at deregulating the economy and stimulating foreign investment. jewellery and so on. pharmaceuticals. However.3. India has a large pool of skilled managerial and technical expertise. chemicals. 6 . India has strengths in information technology and other important areas such as auto components. India has positioned(projected) itself as one of the front-runners in Asia Pacific Region. and represents a powerful consumer market.

Between April and September 2007. industrial parks. But this still leaves an unfinished agenda of permitting greater foreign investment in politically sensitive areas like insurance and retailing. removed restrictions on expansion and facilitated easy access to foreign technology and FDI. There is no doubt about the fact that there has been a worldwide stir about foreign direct investment in India. Here are the highlights of the latest trend figures concerned with FDI in India: * Increase in total FDI: 46.8bn in the previous fiscal year. India's growth rate of 8% certainly owes a lot to foreign equity capital and foreign direct investment. FDI inflows into India reached a record US$19. commodity exchanges. construction development. This was more than double the total of US$7. Why do you think so? Well statistics also say that an average Indian will be growing richer as 7 . Mining and so on. A number of changes were 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. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime.5bn in fiscal year 2006/07 (April-March).2bn. According to the government's Secretariat for Industrial Assistance.2 billion * Total FDI earnings (inward) in Apr-Jan 2005-06: $5. Industrial policy reforms have substantially reduced industrial licensing requirements. FDI inflows were US$8.8% * Rise in foreign equity: 36% * Reinvested foreign earnings and other capital: $3.4 billion In the backdrop of this flourishing Indian economy The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected India to double its GDP reaching a phenomenal USD 1100 billion from present USD 550 billion by 2010. petroleum and natural gas. credit-information services.7 billion * Total FDI earnings (outward) increase: 2000-01: $757 million 2004-05: $2.India's recently liberalised FDI policy permits up to a 100% FDI stake in ventures.

Removal of unwarranted restrictions on hindrances to foreign investments has exceptionally increased FDI in India. Indian Government has a key role to play as far as investment laws are concerned. The GDP investments will likewise increase from current 5% to 35% by 2010. Govt. 1. JVs. foreign investors etc it is little contradictory to say that the current flow of foreign direct investment India has been only 0. Govt. With so much of visibility of MNCs. 2. No wonder India has tremendous potential to attract USD 50 billion FDI in the next 5 years. Higher ceiling in FDI in airport revamp ventures and real estate investment.8% of GDP. 8 . Hence with more liberalization and opening of other sectors of the economy like the latest relaxation in FDI policies in real estate or direct foreign investment in real estate India etc. In this regard it is noteworthy to highlight some of the positive reforms that have brought a positive growth in the Indian economy in terms of GDP growth. 3. 4.per capita income rises from USD 600 per annum to USD 1200 per annum by 2010. of India has already allowed FDI up to 51% with prior government approval in the retail trade of "single brand" products. has removed 10% voting limit in banks. 5. compared to other nations of south-east Asia like Malaysia and Thailand with a FDI flow of 3% of GDP.6% of GDP in the next 5 years. Revisit foreign shareholding norms in telecom is welcome change. FDI will increase by at least 1.

3. diamonds. gold.3 Forbidden Territories: FDI is not permitted in the following industrial sectors: * Arms and ammunition. sulphur. * Mining of iron.Concept & Policy Foreign direct investment is an investment made by a foreign individual or company in productive capacity of another country.3. zinc. gypsum. 3. * Atomic Energy. * Railway Transport. copper. It is the principal mode of investing in developing countries like India. 9 . manganese.1 Foreign Direct Investment .2 Types of FDI There are two types of FDI: * Greenfield investment It is the direct investment in new facilities or the expansion of existing facilities. * Mergers and Acquisition It occurs when a transfer of existing assets from local firms takes place. chrome. * Coal and lignite. It is the movement of capital across national frontiers in a way that grants the investor control over the acquired asset.

FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI. FDI up to 100% is allowed under the automatic route in most sectors/activities. has made it an indispensable tool for initiating economic growth for countries. FDI policy in India is reckoned to be among the most liberal in emerging economies.4 Investment in India Government of India accepts the key role of Foreign Direct Investment (FDI) in economic development not only as an addition to domestic capital but also as an important source of technology and global best practices.5 Foreign Direct Investment Policy Foreign direct investment (FDI) has become an integral part of national development strategies for almost all the nations globally. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route.38 billion during the subsequent period of 2004-05. 3. The Government of India has put in place a liberal and Transparent FDI policy.3.96 billion during the first half of 2005-06 fiscal. Its global popularity and positive output in augmenting of domestic capital. It has displaced US as the second-most favored destination for FDI in the world after China according to an AT Kearney's FDI Confidence Index. as against US$ 2. FDI in India has contributed effectively to the overall growth of the economy in the 10 . productivity and employment. India attracted more than three times foreign investment at US$ 7. India is evolving as one of the 'most favored destination' for FDI in Asia and the Pacific.

FDI inflow has an impact on India's transfer of new technology and innovative ideas. Areas/sectors/activities hitherto not open to FDI/NRI investment shall continue to be so unless otherwise decided and notified by Government. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or the RBI. 11 . Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy announcement by SIA are subsequently notified by RBI under FEMA. FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of the sectors including the services sector under automatic route. improving infrastructure. 3. FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken. thus makes a competitive business environment. The investors are required to notify the Regional office concerned of RBI of receipt of inward remittances within 30 days of such receipt and will have to file the required documents with that office within 30 days after issue of shares to foreign investors. An investor can make an application for prior Government approval even when the proposed activity is under the automatic route.recent times.6 Automatic Route All activities which are not covered under the automatic route prior Government approval for FDI/NRI shall be necessary. All Press Notes are available at the website of Department of Industrial Policy & Promotion.

Department of Industrial Policy & Promotion. Plain paper applications carrying all relevant details are also accepted. The FIPB also grants composite approvals involving foreign investment/foreign technical collaboration. Ministry of Finance. The following information should form part of the proposals submitted to FIPB: Whether the applicant has had or has any previous/existing financial/ technical collaboration or trade mark agreement in India in the same or allied field for which approval has been sought. details thereof and the justification for proposing the new venture/ technical collaboration (including trademarks).7 Procedure for obtaining Government approval. For seeking the approval for FDI other than NRI Investments and 100% EOU. and If so. Applications can also be submitted with Indian Missions abroad who will forward them 12 .8 FDI from NRI & for 100% EOU FDI applications with NRI Investments and 100% EOU should be submitted to the Public Relation & Complaint (PR&C) Section of Secretariat of Industrial Assistance (SIA).FIPB The Foreign Investment Promotion Board (FIPB) considers approving all proposals for foreign investment.3.9 Proposals requiring Govt's approval Application for proposals requiring prior Government's approval should be submitted to FIPB in FC-IL form. applications in form FC-IL should be submitted to the Department of Economic Affairs (DEA). 3. 3. which requires Government approval. No fee is payable.

Trading in Transferable Development Rights (TDRs). required to notify the Regional office concerned of the RBI of receipt of inward remittances within 30 days of such receipt and to file the required documents with the concerned Regional offices of the RBI within 30 days after issue of shares to the foreign investors or NRIs. The companies are.11 General permission of RBI under FEMA RBI has granted general permission under Foreign Exchange Management Act (FEMA) in respect of proposals approved by the Government. Besides new companies. however. Atomic Energy Agricultural or plantation activities or Agriculture (excluding Floriculture. Retail Trading. Development of Seeds. the additional requirements include: 13 . Pisciculture and Cultivation of Vegetables. For existing companies with an expansion programme. Indian companies getting foreign investment approval through FIPB route do not require any further clearance from RBI for the purpose of receiving inward remittance and issue of shares to the foreign investors. Foreign investment proposals received in the DEA are placed before the Foreign Investment Promotion Board (FIPB) within 15 days of receipt. Animal Husbandry.10 FDI Prohibited FDI is not permissible in Gambling and Betting. Horticulture. Housing and Real Estate business. Business of chit fund. 3.to the Department of Economic Affairs for further processing. or Lottery Business. automatic route for FDI/NRI investment is also available to the existing companies proposing to induct foreign equity. under controlled conditions and services related to agro and allied sectors) and Plantations(other than Tea plantations) 3. The decision of the Government in all cases is usually conveyed by the DEA within 30 days. Mushrooms etc. Nidhi Company.

in domestic companies is permitted through automatic route subject to SEBI/RBI regulations and sector specific cap on FDI 3. Otherwise. applicable to public limited companies.12 ADR/GDR An Indian corporate can raise foreign currency resources abroad through the issue of American Depository Receipts (ADRs) or Global Depository Receipts (GDRs). Equity participation by international financial institutions such as ADB. DEG. the proposal would need Government approval through the FIPB. CDC. For existing companies without an expansion programme. IFC. the increase in equity level must be from expansion of the equity base and the foreign equity must be in foreign currency.The increase in equity level resulting from the expansion of the equity base of the existing company without the acquisition of existing shares by NRI/foreign investors. the money to be remitted should be in foreign currency and proposed expansion programme should be in the sector(s) under automatic route. For this a Board Resolution of the existing Indian company must support the proposal. etc. that shares allotted on preferential basis shall not be transferable in any manner for a period of 5 years from the date of their allotment has now been modified to the extent that not more than 20 per cent of the entire contribution brought in by promoter cumulatively in public or preferential issue shall be locked-in. Regulation 4 of Schedule I of FEMA Notification no. the additional requirements for eligibility for automatic approval are: that they are engaged in the industries under automatic route. 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing Global Depository Receipts (GDRs) and/ or 14 . The earlier SEBI requirement.

There is no limit upto which an Indian company can raise ADRs/GDRs. or which is implementing a project falling under Government approval route. A company engaged in the manufacture of items covered under Automatic route. Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance. The FCCB issue proceeds need to conform to external commercial borrowing end use requirements.American Depository Receipts (ADRs). and There are no end-use restrictions on GDR/ADR issue proceeds. in addition. 3. subject to the conditions that: the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme.13 Foreign currency convertible Bonds FCCBs are issued in accordance with the scheme [the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme. whose direct foreign investment after a proposed GDRs/ADRs/FCCBs issue is likely to exceed the percentage limits under the automatic route. Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations. the Indian company has to be otherwise eligible to raise foreign equity under the extant FDI policy. except for an express ban on investment in real estate and stock markets. either in whole. 15 . 25 per cent of the FCCB proceeds can be used for general corporate restructuring. would need to obtain prior Government clearance through FIPB before seeking final approval from the Ministry of Finance. However. 1993 and guidelines issued by the Central Government there under from time to time The Indian company issuing such shares has an approval from the Ministry of Finance. 1993] and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner.

on the basis of any equity related warrants attached to debt instruments. The dividend rate would not exceed the limit prescribed by the Ministry of Finance. the companies have to take RBI approval. as per the following guidelines: Foreign investment in preference share is considered as part of share capital and fall outside the External Commercial Borrowing (ECB) guidelines/cap. 16 .or in part. prior permission of the Department of Economic Affairs is required. Proposals are processed either through the automatic route or FIPB as the case may be. Preference shares to be treated as foreign direct equity for purpose of sectoral caps on foreign equity. 3. where such caps are prescribed. Duration for conversion shall be as per the maximum limit prescribed under the Companies Act or what has been agreed to in the shareholders agreement whichever is less. From USD 100 Million and above. The eligibility for issue of Convertible Bonds or Ordinary Shares of Issuing Company is given as under: An issuing company desirous of raising foreign funds by issuing Foreign Currency Convertible Bonds or ordinary shares for equity issues through Global Depositary Receipt Can issue FCCBs. upto USD 50 Million under the Automatic route. From USD 50 -100 Million. Issue of preference shares should conform to guidelines prescribed by the SEBI and RBI and other statutory requirements. provided they carry a conversion option. Preference shares structured without such conversion option fall outside the foreign direct equity cap.14 Preference Shares Foreign investment through preference shares is treated as foreign direct investment.

1 Special Economic Zones 100% FDI is permitted under automatic route for setting up of Special Economic Zone. subject to sectoral norms.2 Export Oriented Units (EOUs) 100% FDI is permitted under automatic route for setting up 100% EOU. FDI in EOUs/SEZs/Industrial Park/EHTP/STP 4. For proposals not covered under automatic route. Details about the type of activities permitted are available in the Foreign Trade Policy issued by Department of Commerce. 4. Units in SEZ qualify for approval through automatic route subject to sectoral norms. the applicant should seek separate approval of the FIPB. Electronic Hardware Technology Park (EHTP) Units All proposals for FDI/NRI investment in EHTP Units are eligible for approval under automatic route. 4. 17 . Proposals not covered under the automatic route would be considered and approved by FIPB.4. Proposals not covered under the automatic route require approval by FIPB.3 Industrial Park 100% FDI is permitted under automatic route for setting up of Industrial Park.

the applicant should seek separate approval of the FIPB. royalty payable and external commercial borrowings (ECBs) in convertible foreign currency are permitted. with effect from June 1. subject to meeting all applicable tax liabilities and sector specific guidelines.4 Software Technology Park Units All proposals for FDI/NRI investment in STP Units are eligible for approval under automatic route. Under FEMA an Indian company with foreign equity participation is treated at par with other locally incorporated companies. 1999. The new legislation is for "facilitating external trade" and "promoting the orderly development and maintenance of foreign exchange market in India". Exchange Control Management 5. 5.4. (FEMA) which has replaced the earlier act. FEMA extends to the whole of India. Issue of equity to non-residents against other modes of FDI inflows or in kind is not permissible.5 Capitalization of Import Payables FDI inflows are required to be under the following modes: By inward remittances through normal banking channels or by debit to the specified account of person concerned maintained in an authorized dealer/authorized bank. For proposals not covered under automatic route. administers Foreign Exchange Management Act. 18 . Issue of equity shares against lump sum fee. 2000. FERA.1 FEMA The Reserve Bank of India's Exchange Control Department. However. 4.

to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India. 2000 5. the exchange control laws and regulations for residents apply to foreigninvested companies as well. FEMA 20/2000-RB dated May 3. Central Office. Foreign Investment Division. bonus shares can be issued to OCBs. and face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5% of the paid-up capital of the issuing company. 5. Mumbai for issue of shares on right basis to erstwhile OCBs.2 FDI in Indian Company In terms of Section 6(3) (b) of Foreign Exchange Management Act.Accordingly. Entitlement of rights shares is not automatically available to investors who have been allotted such shares as OCBs. directly or through a Trust subject to the condition that the scheme has been drawn in terms of relevant regulations issued by the SEBI. Such issuing companies would have to seek specific permission from RBI. 5. Foreign Exchange Department. 19 . However.4 Issue of shares under ESOS scheme A company may issue shares under this Scheme.3 Issue of Rights/ Bonus Shares General permission is available to Indian companies to issue Right/Bonus shares subject to certain conditions. 1999 Reserve Bank regulates transfer or issue of any security by a person resident outside India read with Notification No.

Government of India to issue such ADRs and/or GDRs or is eligible to issue ADRs/ GDRs in terms of the relevant scheme in force or notification issued by the Ministry of Finance. Regulation 4 of Schedule I of FEMA Notification no.6 Repatriation of investment Capital and profits Earned in India All foreign investments are freely repatriable except for the cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer. subject to the conditions that: The ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme. 20 allows an Indian company to issue its Rupee denominated shares to a person resident outside India being a depository for the purpose of issuing GDRs and/ or ADRs. Non-residents can sell shares on stock exchange without prior approval of RBI and repatriate through a bank the sale proceeds if they hold the shares on repatriation basis 20 . and Is not otherwise ineligible to issue shares to persons resident outside India in terms of these Regulations.5 Issue of shares under merger/amalgamation An Indian corporate can raise foreign currency resources abroad through the issue of ADRs or GDRs.5. The Indian company issuing such shares has an approval from the Ministry of Finance. 5. 1993 and guidelines issued by the Central Government there under from time to time.

provided transferee has obtained prior permission of Central Government to acquire the shares if he has previous venture or tie-up in India in the same field or allied field The person resident outside India may transfer any security to a person resident in India by way of gift. The sale price of shares on recognised units is to be determined in accordance with the guidelines prescribed under Regulation 10B (2) of the above Notification.and if they have necessary NOC/tax clearance certificate issued by Income Tax authorities. 5. etc.7 Transfer of shares/debentures A person resident outside India (Other than NRI and OCB) may transfer by way of sale or gift the shares or convertible debentures to any person resident outside India (including NRIs). FEMA. provided transferee has obtained prior permission of SIA/FIPB to acquire the shares if he has previous venture or tie-up in India in same field or allied field NRI or OCB may transfer by way of sale or gift the shares or convertible debentures held by him or it to another non-resident Indian. A person resident outside India may sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a registered broker. 21 .B of Notification No. Profits. (which are remittances classified as current account transactions) can be freely repatriated. dividends.20/2000 RB dated 3rd May 2000. Regional offices of RBI grant permission for recognized units of foreign equity in Indian company in terms of guidelines indicated in Regulation 10. For sale of shares through private arrangements.

a. Gift / donation over US$ 5. (over and above ceilings prescribed for other remittances mentioned above) by a resident individual for any current account or capital account transaction.F basis. In certain specified cases.000 / US$ 10. Payment of import through ocean transport by a Govt.000 per academic year Architectural / consultancy services procured from abroad over US$ 1.000 p.000. Business travel over US$ 25.5.000 per beneficiary p. 5. Department or a PSU on C. such as: Remittance of freight of vessel chartered by a PSU.000 p. Multi-modal transport operators making remittance to their agents abroad.000 per person Foreign studies as per estimate of institution or US$ 100.9 Acquisition of Immovable property by Non-resident A person resident outside India.000 Remittances exceeding US$ 25.8 Current Account transactions Prior approval of the RBI is required for acquiring foreign currency above certain limits for the following purposes: Holiday travel over US$ 10. who has been permitted by Reserve Bank to establish 22 .a.000 per project Remittance for purchase of Trade Mark / Franchise Reimbursement of pre incorporation expenses over US$ 100. prior approval of the ministry concerned is needed for withdrawal of foreign exchange.I.a.

or incidental to.11 Liberalization of FDI Beside 100 percent relaxation of FDI in real estate. The government is now set to initiate a second wave of reforms in the segment by 23 . in such cases a declaration. Foreign nationals of non-Indian origin who have acquired immovable property in India with the specific approval of the Reserve Bank cannot transfer such property without prior permission from the Reserve Bank of India.10 Acquisition of Immovable property by NRI An Indian citizen resident outside India (NRI) can acquire by way of purchase any immovable property in India other than agricultural/ plantation /farm house. or place of business in India (excluding a Liaison Office).a branch. Limit for telecom services firms have been raised from 49 per cent to 74 per cent. within 90 days of the acquisition of immovable property. is required to be filed with the Reserve Bank. in prescribed form (IPI). which is necessary for. 5. This includes 100 percent in power trading. 5. Another cap to the retailing industry in India is allowing 51% FDI in single brand outlet. However. the activity. the government policies on FDI also offer opportunities for foreign investors to invest in different sectors. He may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India or a person resident in India. has general permission of Reserve Bank to acquire immovable property in India. petroleum infrastructure and warehousing of coffee and rubber. processing. or office. development of new airports. laying of natural gas pipelines.

* India's share of global FDI flows rose from 1.S.$ 6. 24 . And this has also brought about a conspicuous interest by towards investments in the Indian hospitality sector.liberalizing investment norms further.A.S.S. * Mauritius.4 per cent share).S.2 percent in 1997.S. $ 2.98. Industry reports suggest the inflow of about US$ 500 million into the real estate sector over the past six months and is expected to rise to a massive $ seven to eight billion over the next 18-30 months. U.025 million compared to U.008 million in 1996-97 because of a decline in portfolio investment. * FDI in India in 1997-98 was lower at U. respectively.2 per cent of total FDI) to U.8 per cent in 1996 to 2.S. $ 5. $ 6. behind China and the USA. Although foreign direct investment (FDI) increased by 18. Korea were. the second and third largest sources of FDI. according to an AT Kearney survey that tracked investor confidence among global executives to decide their order of preferences.$ 333. The FDI boom in India * India is now the third most favoured destination for Foreign Direct Investment (FDI). * There has been a sharp rise in the number of FDIs approved in 2004. and S.S. as in the previous two years. $ 3.696 million in 1996-97 to U.197 million in 1997. was the dominant source of FDI inflows in 1997. * S.1 million in 1997-98 (10. Korea increased its flow of investment in India from a meager U.3 million in 1996-97 (0. 6.6 per cent from U.98 * International developments continue to attract capital flows into India in 1998-99 as well.

Rs.220 crore worth of FDI was approved. as against net inflows of $1.* During the first seven months of 2004. 25 .2 billion in the corresponding period last year. * Almost a third share of the investment in India is by NRI. between January and July. * According to the latest Reserve Bank of India figures. outflows through various NRI deposits schemes amounted to $903 million since May 2004. 5.

26 . USA "Invest in America" is an initiative of the US Department of Commerce and aimed to promote the arrival of foreigners investors to the country.7. FDI and other world countries 1.  Offering policy guidelines and helping getting access to the legal system.  Carrying out maneuvers to aid foreign investors.  Address concerns related to the business environment by helping as an ombudsman in Washington Dc for the international venture community. The ³Invest in America´ policy is focused on:  Facilitating investor queries.  Provide support both at local and state levels.

000 new jobs have been created by foreign companies. gross domestic product (GDP). Increased US exports through the use of multinational distribution networks. 2010 has again seen investments 27 . Benefits of FDI in America: In the last 6 years. which is a 37 percent increase from 2007. More than $325.1 trillion stock of FDI in the United States at the end of 2008 is the equivalent of approximately 16 percent of U. China has continued its massive growth and is the leader among all developing nations in terms of FDI. The $2. FDI has resulted in 30% of jobs for Americans in the manufacturing sector. which accounts for 12% of all manufacturing jobs in the US. Inward FDI has led to higher productivity through increased capital. FDI in China has grown to over $300 billion in the first 10 years. Unarguably. 2. resulting in close to $314 billion in investment.3 billion in FDI flowed into the United States in 2008. CHINA FDI in China has been one of the major successes of the past 3 decades. Foreign companies have in the past supported an annual US payroll of $364 billion with an average annual compensation of $68. Even though there was a slight dip in FDI in 2009 as a result of the global slowdown. over 4000 new projects and 630. Starting from a baseline of less than $19 billion just 20 years ago.000 per employee.S. The United States is the world¶s largest recipient of FDI. which in turn has led to high living standards. US affiliates of foreign companies have a history of paying higher wages than US corporations. Affiliates of foreign corporations spent more than $34 billions on research and development in 2006 and continue to support many national projects.

D.60 Billion for China. India is emerging as a big market to exploit as Microsoft doesn't have much in stake in China.9 billion during April ±July 2006 from $ 1. CISCO has announced plans to spend $ 1.7 billion over the next few years in India.Ups and downs in Indian 28 . The number of foreign and NRI equities which have invested in India between Aug' 1991 ± Nov' 2002 is 15761 with a total foreign investment of Rs.5 Billion in Bharti Tele ventures by Vodaphone is another big FDI inflow into the country. India V/S China A recent international agency report has explained that the Indian economy will become one of the world's largest by 2050 A. However things are changing and improving in India too. To be a genuine competitor of China in FDI. Bill Gates in recent visit to India announced that the Microsoft will invest around $ 1.5 billion for the same period last year (2007) representing a growth rate of 259 %. India should attain an annual growth rate of 10 %. Purchasing of shares to the tune of $ 1.1 billion since 1991 of which $16 billion or 32% of it came since April 2004. FDI investment in India has nearly doubled to $2.increase. the world's largest computer chips company has planned to invest over $ 1 billion in India. The negative side of this bouncing FDI and NRI inflow is the constraints of Indian economic growth which are internal and not external . The Chinese continue to steamroll with expectations that economic growth will be 10% this year.1 billion over the next few years in India. Intel. According to the RBI. 283447 Crores. it is inferred that India has received $50. So far India has not attracted more then $ 3-4 Billion annually when compared to FDI inflows of $ 55. And for Microsoft. In the last couple of months there has been a series of announcements of huge investments by giant foreign and NRI companies. With a GDP growth rate of 8 per cent since 2003 starting with a rebound in the Indian agriculture initially but now followed with a boom in production and service sectors similar to that of China.

" If a comparative analysis of the Indian and Chinese economy is done some interesting comparison emerges through India lags behind China in so many areas and a lot needs to be done if India has to catch up with China. incomplete flyovers. Truant Left Parties whose support is important for the survival of the UPA government at the center is another major bottleneck in the inflow to FDI investment.agriculture plays a major role in constraining Indian growth rate coupled with unhealthy infrastructure like pot holed roads. The commerce minister of India feels it is possible though he has a note of caution. Again lopsided regional variation in the economic growth of the country is another major impediment in the economic growth. rapid growth of Indian agriculture. However a very reassuring development has been the tremendous boost up which the recent budget has given to industrial infrastructure and FDI investment in India. Looking at the current rate of FDI inflow India can attract a record of $ 12 billion FDI inflow this fiscal year. Malaysia and so on. We can¶t lose focus on attracting investments since we cant get inflows by giving lectures but work on ways to get investors. undeveloped airport facilities etc are the main constraints in the growth of the Indian economy. The comparative analysis is given as below: 29 . "There is competition not only just from China but also from others like Thailand. the tremendous global outsourcing boom in India and a well-regulated and deep capital market. boost up to infrastructural facilities. Positive side of the story is the tremendous resilience of the economy.

Total population China.478 US $ billion 12.1033 billion 9.50 per cent India.26 per cent 10. Share of agriculture in GDP China.15 per cent 30 . Labor force China. Annual GDP China.1272 billion India. Savings rate China.Basis of Comparison 8.451 billion 11.757 billion India.US $ 1159 billion India.

1 % of GNP 31 .7 17. Share of service sector in GDP China.56.27 per cent 13. Motor vehicles per 1000 people China.5 thousand sq kms 16.62.India.0.33 per cent India.52 per cent India. Share of industry in GDP China. R& D expenditure China. Rail routes China.8 India.48 per cent 15.7 thousand sq kms India.27 per cent 14.

Female adult literacy China.2.6 % of GNP 18.45 per cent 21.2 per cent of GNP 20.3 per cent of GNP India.India. Education expenditure China.0.85 per cent India.23 per cent of the total population 32 .3.6 per 10000 people India.0. Internet host China. Undernourished people China.0.8 per 10000 people 19.9 per cent of the total population India.

vast market for every product. The Indian bull is no doubt energetic now however it has to run fast to overtake the Chinese dragon which is possible if friendly ground is created. Even today. increasing impact of consumerism. This exception is about India's certain higher rate of growth in the coming future. A lot more needs to be done. This present picture gives some reflections of the future. Conclusion It is generally said that future is always uncertain. The future of Indian economy is brighter because of its huge human resources. But this is all in the absolute sense and not 33 . availability of large number of competent professionals. packages are becoming lucrative and competitive and annual rate of growth is highest after China.44 /Dollar and a healthy growth trend of the major sectors of the Indian economy the environment is very positive for FDI and NRI inflows. However compared to China it is still behind even though it is marching ahead. India is producing largest number of billionaires in a year. rapidly upcoming service sector. the Rupee is becoming stronger and stronger in relation to Dollar. the craze of Indians to go abroad is rapidly diminishing. a buoyant Rupee of Rs 43. thousands of foreigners are working as executives in India. But at the same time it is also said that exceptions are always there. India's say in the international diplomacy and political affairs has now become meaningful. take over by Indian multinationals is amazing. This saying is correct to some extent. absence of controls and licenses. interest of foreign entrepreneurs in India and existence of four hundred million middle class people.Thus it is noticed that the overall scene of Indian economy with a booming stock touching almost the 14000 mark.

Consolidated FDI Policy (2010): An analysis The Government of India released the new document on FDI policy on March 31. automobiles. India therefore stands to win in the next few years. This is a good move considering that this would bring clarity in understanding the foreign investment rules 34 . food processing sectors. India's continuing ambivalence on FDI. 2010 whereby this document now consolidates all existing regulations related to FDI contained in the Foreign Exchange Management Act (FEMA).2 billion. In this context it is also worth mentioning that savings rate has also increased from 23% to 31% over the last year to this year. 2010 and would be replaced every 6 months after incorporating the changes which have been effected during the said period. Undoubtedly. 8. policies allow more participation and is able to attract more and more foreign direct investment in India. India is poised for further growth in manufacturing. The comprehensive policy document came into effect from April 1. exacts a heavy toll on the economy. real estate development etc. Today. While China achieved actual FDI inflows of around $45. auto components. infrastructure. as a result.3 billion in 1997. India settled for a mere $3. RBI Circulars and various press notes issued at various points in time. India provides highest returns on FDI than any other country in the world. A country can only grow if the Govt.in the relative terms. India is ceding billions of dollars of FDI to its neighbors each year.

Telecom (49%). famines) to farmers and rural residents and for banks to be set up in rural areas where this is a Greenfield project. Banking and Insurance sectors could also do with a hike in the FDI limits while this is being monitored after the global meltdown where some of the largest banks and financial institutions went bust. 100% FDI is allowed in facsimile publication of foreign newspapers by an entity incorporated or registered in India. This is also expected to improve transparency and boost global investors¶ confidence. Gambling and Betting. aviation. Nidhi company etc. In certain sectors like Atomic Energy. roads) and services. This remains the single biggest sector of focus where the Government believes that improvements in the sector coupled 35 . FDI in multi-brand retail is another sector where FDI is currently not permitted though the Government says that the current retail infrastructure including the backend (from the farm to the store) needs to be strengthened.000 tax deduction for individuals in long term infrastructure bonds helping to garner funds for infrastructure development. coal. The Economic Survey released by the Finance Ministry for the year 2009-10 indicated impressive growth in sectors like telecom. The Government might encourage investments by foreign insurance companies in health and weather (floods. FDI is not permitted. Multi Brand Retail. infrastructure (power. Currently. Insurance (26%). Budget 2010 presented by the Government in February 2010 allocated 46% of the total planned outlay in infrastructure (rural and urban) along with an additional INR 20. The Government is looking to allow FDI in media and also looking to amend the Press and Registration of Books Act 1867 to facilitate the entry of foreign newspapers or Indian editions of foreign newspapers being printed. The present FDI limit is 26% under Government approval. Lottery. Aviation (74%) and Single brand retail (51%) etc. 100% FDI is permitted under the automatic route in most of the sectors while there are Sectoral caps in the case of Banking (74%).among investors resulting ultimately in simplification of the policy. ports. The entry of large Indian retail chains has in general been positive allowing farmers to get better prices for their produce and giving multiple choices to the end user.

ABG shipyard. Torrent. Welspun. The top 3 Indian Regions attracting the highest FDI (April 2000 to January 2010) have been Mumbai Region (representing with US$ 38.171 crores) million and US$ 5.382 (INR 28. NIFT.with reforms in governance could take India to a double-digit growth rate. Alstom (France).691 crores) followed by Delhi Region with US$ 21. proactive governance model and investor friendly regulations go in favour of this state. Adani. availability of skilled manpower (presence of academic and research institutions like IIM. in particular. Linde ( Germany) have set up their operations in the state.864 crores) million respectively. Essar. Zydus Cadila. Clinical Establishments bill to improve the quality of health standards and regulate the clinical research establishments in the country are measures set to improve transparency and boost the overall confidence of the investors.125 crores) and Karnataka Region with US$ 6. Some of the leading Indian and Multinational companies including Reliance.074 million (INR 169. 36 . has grabbed the attention of foreign investors due to the presence of strong road and rail network. Amul. Gujarat. Tata.460 million (INR 97. Aditya Birla. The three put together have accounted for nearly 62% of the total FDI inflows received over the the last 10 years. Shell (Netherlands) General Motors (USA).309 (INR 23.850 crores). The setting up of National Mission on Enhanced Energy Efficiency (NMEEE) which aims to create a market for energy efficiency.750 million (INR 29. Other Regions like Gujarat and TamilNadu are also beginning to attract FDI inflows in the last 5 years and are currently not far behind Karnataka Region at US$ 6. Bombardier (Canada). NID. CEPT etc). Matsushita (Japan). McCain Foods (Canada).

9. Top 10 Investors in India 37 .

10. Top 10 Investors from India 38 .

A third of this complex deal was in cash that was raised from cairn plc's pre-IPO placement to investors.737 crore for the 40% stake that it will sell to Vedanta Resources. It will further receive Rs 8452.11. Cairn PLC has already cashed out.4 billion. the Cairn sale raises questions on whether government should allow reverse foreign direct investment (FDI). Should government allow reverse FDI? Cairn PLC's divestment of Cairn India is the second largest domestic merger and acquisition deal in the country. Now. At a time when the government is finding it tough to attract foreign interest in NELP blocks.7 crore for the 11% stake that it might have to sell to Vedanta if Sesa Goa fails to garner 51% control via open offer. Cairn PLC will receive Rs 30. While the government and Cairn's India shareholders are yet to enjoy the fruits of Cairn India. This Rajasthan block forms the bulk of the valuation that it received from Vedanta 39 . Cairn plc acquired 64% stake in cairn India before and during its IPO for Rs 20.723 crore or nearly USD 4.

Now after this deal with Vedanta.5 times the investments that it makes in Rajasthan. This deal has been done before any benefit has been enjoyed by Cairn India's shareholders. 40 . Cairn is entitled to 80% of profit after deduction of costs upto an investment multiple of 1. and this gradually reduces to 50% above 2.2 billion. As far as the government is concerned. before the NELP policy came it being. The Rajasthan block too had a 30% back-in right under which government nominated ONGC to take 30% economic interest at no additional cost. Cairn is expected to pay capital gains tax at around 15% that is to the tune of under Rs 2600 crore to the govt. oil blocks were allocated to private companies and the government had "back-in" rights in case of commercial discoveries. it will book a capital gain of over USD 3.5 times the cost. In the first phase.group.

A.scribd.com www.economywatch.org www.indiadaily.References Internet links a) b) c) d) e) f) www.google.org www.com www. E:Foreign Direct Investment: Analysis 41 . and Sadka. Razin.wikipedia.com Books 1. Macmillan: Foreign Direct Investment 2.timesofindia.com www.

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