Professional Documents
Culture Documents
Learning value:
1. Meaning and correct trends of FDI
Investment is “the flow of funds one destination to another”, for any activity,
including industrial development, infrastructure and manufacturing. When
the investment goes from the home country to another country it is defined
as ‘investment outflow’ and when the foreign investment comes from other
countries to home country it is termed as ‘investment inflow’. Both inward
and outward movements are encouraged in majority of the countries.
• Production
• Marketing / services
The parent company has direct managerial control, but the degree of
control may depend on the type of country and company policy. Prior to
their investment decisions it is necessary to carry out risk analysis and
interpretations of the same. MNCs do not develop blind faith in any
country. A team of experts analyse risks carefully and invest gradually.
CHARACTERISTICS OF FDI
INVESTMENT PATTERNS
More than two thousand multinational from the USA and Europe have
invested in Chinese Special Economies Zones and Export Processing Zones.
Indonesia, Thailand, Philippines and Malaysia have also now become
attractive destinations. In Latin America, Brazil, Argentina and Columbia
are also attracting huge investments. Malta, Cyprus, Panama, Mans Island
and Mauritius are growing only through Foreign Direct Investment, either in
manufacturing, trading, or any other form. The reputation of such
destinations depends on their ability to attract investments through their
policies and hassle-free industrial climate.
• The investing companies may not serve the host country’s interests.
• There is an outflow of earnings as they are repatriated to their home
country.
• FDI can even wipe out the local firms. Infant industries and other
home industries may suffer if they cannot compete. Home country
producers do not have money power or technology to withstand the
onslaught of the investors.
• Profits are repatriated abroad. They may not stay in the country for
reinvestment.
• Major tax heavens will enjoy the money at the cost of home country.
• Exporting may not be feasible with high transportation costs and trade
barriers.
• Companies, with operations only in the home country, have limited
scope for prosperity and in order to grow fast investing in fertile grounds
outside is a strategic move.
Project Office
Branch Office
The entry strategies through an Indian entity are given below. The Indian
entity may be a subsidiary of the foreign company in India or it may be
joint venture.
As an Indian company
The investor who invests to setup units in the above categories does
not need mandatory permission from Foreign Investment Promotion
Board of Reserve Bank of India. It is called automatic route. Such
units can enjoy 100% profit repatriation to their home countries.
Use or GDRs
The proceeds of the GDRs can be used for financing capital goods imports,
capital expenditure including domestic purchase/installation of a plant,
equipment and building and investment in software development,
prepayment or scheduled repayment of earlier external borrowings, and
equity investment in joint ventures and wholly owned subsidiaries, in India.
Restrictions
However, investment in stock markets and real estate will not be permitted.
Companies may retain the proceeds abroad or may remit funds into India in
anticipation of the use of funds for approved end uses. Any investment from
a foreign firm into India requires prior approval of the Government of India.
FDI POLICY
• Activities where the automatic route is not available under the notified
sectoral policy.
5. Security services.
6. Atomic energy.
The general policy and facilities for Foreign Direct Investment as available
to foreign investors/companies are fully applicable to NRIs as well. In
addition, the Government has extended some concessions for NRIs and
Overseas Corporate Bodies in which NRIs have invested more than 60%.
These include:
1. Exploration of oil.
Several steps have been initiated during the year to facilitate increased FDI
inflows, which include, inter alia, the following:
4. Bureaucratic red tape, which the investor does not have to face in
other destinations in the world.