FOREIGN DIRECT INVESTMENTS &

RETAIL INDUSTRIES

Key words:_ _ _ _ _ _ _ _ _

Abstract Introduction Classification FDI Behavior of Multinational corporations FDI & Indian rules and regulation FDI & India Indian Market & Investment Conclusion Enclosure FDI report up to July 2007 by RBI News cutting on FDI

The rise in FDI volume was accompanied by a marked change in its composition. Increasing labor standards and skills. overseas investors clearly see the potential for attractive returns from investments in India. . productivity and employment. FDI to developing countries in the 1990s was the leading source of external financing. As the Indian economy gears for competition in the international market. Government procedures are constantly being simplified and paper work minimized. Transfer of new technology and innovative ideas. The first and second-generation reforms have created a conducive environment for foreign investments in India. Market oriented policies are boosting economic activity. Reliance on FDI is rising heavily due to its all round contributions to the economy. That is investment taking the form of acquisition of existing assets (mergers and acquisitions) grew much more rapidly than investment in new assets particularly in countries undertaking extensive privatization of public enterprises. Foreign direct investment (FDI) is considered to be the lifeblood for economic development as far as the developing nations are concerned. Improving infrastructure. FDI has an impact on country's trade balance. all round development and GDP growth rate. FDI is considered to be an essential tool for jump-starting economic growth through its bolstering of domestic capital. which is also evident from the many FDI success stories already achieved. The important effect of FDI is its contributions to the growth of the economy. skills and the general business climate.ABSTRACT Foreign direct investment (FDI) has become a key component of national development strategies for all most all the countries over the Globe.

particularly after a decade of economic reforms. its significant market potential and a liberalized policy regime has sustained its attraction as a favorable destination for foreign investors. Even though India has been a latecomer to the FDI scene compared to other East Asian countries. developing countries.e. In this context..INTRODUCTION Foreign direct investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. the article further investigates the likely impact on FDI inflows to India as a result of increasing competition from another major emerging market economy." The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). have been witnessing a massive surge of FDI inflows during the past two decades. China. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm. and analyzes the challenges to position itself favorably in the global competition for FDI. . This article aims to examine the impact of inward FDI on the Indian economy. i. in the wake of its accession to the WTO. With the advent of globalization. In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. particularly those in Asia.

FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of global GDP . as much of the world recovered from the destruction brought by the conflict. Since that time FDI has spread to become a truly global phenomenon. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960.History In the years after the Second World War global FDI was dominated by the United States. no longer the exclusive preserve of OECD countries.

low interest loans. sometimes called "direct investment abroad". grants. The Organization for International Investment cites the benefits of Greenfield investment (or in sourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms). investments in research and development. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs. and additional capital investments. subsidies. Inward FDI is encouraged by: _ Tax breaks. lifting of certain restrictions. _ The thought is that the long term gain is worth short term loss of income Inward FDI is restricted by: _ Ownership restraints or limits. Outward FDI is restricted by: _ Tax incentives or disincentives on firms that invest outside of the home country or on repatriated profits. Outward Outward foreign direct investment. . By Target Greenfield investment Direct investment in new facilities or the expansion of existing facilities is known as Greenfield investment. and can lead to linkages to the global marketplace. is when local capital is invested in foreign resources.Classification of FDI By Direction Inward Inward foreign direct investment is when foreign capital is invested in local resources. _ Subsidies for local businesses. Outward FDI is encouraged by: _ Government-backed insurance to cover risk. transfer technology and know-how. _ Differential performance requirements.

By Motive FDI can also be categorized based on the motive behind the investment from the perspective of the investing firm: Resource-Seeking Investments which seek to acquire factors of production those are more efficient than those obtainable in the home economy of the firm. In some cases. It is suggested that this type of FDI comes after either resource or market seeking investments have been realized.Mergers and Acquisitions Transfers of existing assets from local firms to foreign firms’ takes place. FDI of this kind may also be employed as defensive strategy. Nevertheless. Vertical FDI _ Backward Vertical FDI Where an industry abroad provides inputs for a firm's domestic production process. the primary type of FDI is called Mergers and acquisitions. it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. mergers and acquisitions are a significant form of FDI and until around 1997. Horizontal FDI Investment in the same industry abroad as a firm operates in at home. with the expectation that it further increases the profitability of the firm. Strategic-Asset-Seeking . accounted for nearly 90% of the FDI flow into the United States. these resources may not be available in the home economy at all (e. Mergers are the most common way for multinationals to do FDI. Efficiency-Seeking Investments which firms hope will increase their efficiency by exploiting the benefits of economies of scale and scope. and also those of common ownership. Market-Seeking Investments which aim at either penetrating new markets or maintaining existing ones is market seeking. _ Forward Vertical FDI Where an industry abroad sells the outputs of a firm's domestic production.g. cheap labor and natural resources).

6 percent annually from 1986 through 1999. For years. MNC. For example. when a firm based in one country locates or acquires production facilities in other countries. United Nations data show that real world FDI inflows grew by 17.7 percent over this same period! Additionally. the conventional theory was to compare FDI to bonds. Foreign Direct Investment Behavior of Multinational Corporations There is increasing recognition that understanding the forces of economic globalization requires looking first at foreign direct investment (FDI) by multinational corporations (MNCs): that is.S. or what is termed Intra-firm trade Exchange Rates and FDI One good example of this is the effect of exchange rate movements on FDI. with roughly 50 percent of U. but it also reduces the nominal return one receives in the foreign currency. exports and imports flow through a U. MNCs mediate most world trade flows.5 percent annual rate and real world exports grew by 5. whom may not need the oil at present. Empirical studies of FDI seemed to . Easily compared to that of the oil producers.A tactical investment to prevent the loss of resource to a competitor. A depreciation of the currency in the host country reduces the amount of foreign currency needed to purchase the asset. and Schott find that 90 percent of U. the rate of return for the foreign investor does not change. Jensen.S. Thus.S. but look to prevent their competitors from having it. for which exchange rate movements do not affect the investment decision. Bernard. trade flows occurring between affiliates of the same MNC. While real world GDP grew at a 2.

Hines. and co-authors have shown that the way in which parent countries reduce double taxation on their MNCs (for example. In a study examining all U. But my research into this relationship has also yielded surprises. Many countries also have negotiated bilateral investment treaties (BITs) to mutually reduce withholding taxes on MNCs based in the other country. and worries about the selling of key national technological assets. so much so that it is rarely examined empirically. James R. access to better information about some host countries may make FDI to that location more likely. I find that FDI responses to these trade actions (tariff-jumping FDI) occur only for firms with previous experience as MNCs. and coordination of suppliers. MNCs are potentially subject to taxation in both the host and parent country. Information and FDI An almost unexplored issue in the literature has been the role of information on FDI decisions. often finding insignificant effects of exchange rates. or even negative. Jr. FDI requires substantial fixed costs of identifying an efficient location.confirm this. allowing credits or deductions) can have quite different implications for FDI activity. effects on FDI flows. Others contend that BITs are mainly intended to share tax information across countries in order to deter tax evasion and to reduce administrative costs and. The Organization for Economic Co-operation and Development (OECD) has been a big advocate of BITs as a way to enhance FDI across member countries. the popular press often points to host-country exchange rate depreciations as a contributing factor to inward foreign investment booms. Thus. antidumping trade protection actions from 1980 through 1995. acquiring knowledge of the local regulatory environment. .S. most parent countries have policies to reduce or eliminate double taxation of their MNCs. Taxes and FDI Another factor that the literature finds does not affect FDI in a straightforward manner is tax policy. thus. should have little. However. Trade Protection and FDI The notion that trade protection encourages FDI is folk wisdom for economists. In contradiction to this.

. and health units for tourists and Convention/Seminar units and organizations.Estimating Long-Run General-Equilibrium Determinants of FDI Much of the literature described to this point motivates analysis with partial equilibrium models of individual firm-level FDI decisions. units providing facilities for cultural. Sector Specific Foreign Direct Investment in India: FDI in India Hotel & Tourism: FDI in Hotel & Tourism sector in India 100% FDI is permissible in the sector on the automatic route. specifying parent. The term hotels include restaurants. leisure. entertainment. adventure and wild life experience to tourists. Tourism related industry include travel agencies. But we also want to have empirical specifications of FDI that are grounded in theory and that do a good job of explaining FDI patterns across the world. amusement. FDI & INDIA’S RULES AND REGULATIONS Foreign direct investment (“FDI”) is prohibited in the following cases: _ Gambling and Betting _ Lottery Business _ Retail Trading (except single brand retail trading-not provided in Master Circular) _ Atomic Energy _ Housing and Real Estates _ Agriculture (with certain exceptions) and Plantations (Other than Tea plantations).and host-country GDPs along with distance as core determinants of FDI. tour operating agencies and tourist transport operating agencies. and other tourist complexes providing accommodation and/or catering and food facilities to tourists. Researchers looking at world FDI patterns have generally used variations of a gravity framework to model FDI. surface. sports. air and water transport facilities to tourists. beach resorts.

5 million to be brought upfront ii) For FDI above 51% and up to 75% .US $ 5 million to be brought upfront iii) For FDI above 75% and up to 100% . Rural Credit b. Venture Capital ix. Minimum capitalization norms for non-fund based activities: Minimum capitalization norm of US $ 0.5 million to be brought up front and the balance in 24 months c. (b)(i) and (b)(ii) . Leasing & Finance xiv. Foreign Exchange Brokering xvi. Custodial Services x. Credit rating Agencies xiii.e.US $ 50 million out of which US $ 7. Credit Reference Agencies xii. Minimum Capitalization Norms for fund based NBFCs: i) For FDI up to 51% . Credit card business xvii.5 million is applicable in respect of all permitted nonfund based NBFCs with foreign investment. Financial Consultancy vi. Factoring xi. Money changing Business xviii. Housing Finance xv. FDI/NRI/OCB investments allowed in the following 19 NBFC activities shall be as per levels indicated below: i. Merchant banking ii. a. Foreign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of 25% of its equity to Indian entities.US$ 0. Asset Management viii. subject to the subsidiaries also complying with the applicable minimum capital inflow i. Joint Venture operating NBFC's that have 75% or less than 75% foreign investment will also be allowed to set up subsidiaries for undertaking other NBFC activities.Private Sector Banking: Non-Banking Financial Companies (NBFC) 49% FDI is allowed from all sources on the automatic route subject to guidelines issued from RBI from time to time. Micro Credit xix. Portfolio Management Services iv. subject to bringing in US$ 50 million as at b) (iii) above (without any restriction on number of operating subsidiaries without bringing in additional capital) e. Underwriting iii. Stock Broking vii. Investment Advisory Services v. d.

FDI is permitted up to 74% with FDI. under the FIPB route:- . cellular. iv. However. ISPs with gateways.in period for transfer and addition of equity and other license provisions. value added services and global mobile personal communications by satellite. These services would be subject to licensing and security requirements. Infrastructure Providers providing dark fiber (IP Category 1). Telecommunication: FDI in Telecommunication sector i. Trading: FDI in Trading Companies in India Trading is permitted under automatic route with FDI up to 51% provided it is primarily export activities. RBI would issue appropriate guidelines in this regard. The above services would be subject to licensing and security requirements. FDI up to 100% is allowed for the following activities in the telecom sector : ISPs not providing gateways (both for satellite and submarine cables).above. Proposals for FDI beyond 49% shall be considered by FIPB on case to case basis. FDI is limited to 49% subject to licensing and security requirements and adherence by the companies (who are investing and the companies in which investment is being made) to the license conditions for foreign equity cap and lock. FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of the Reserve Bank of India. No equity cap is applicable to manufacturing activities. iii. f. if these companies are listed in other parts of the world. and the undertaking is an export house/trading house/super trading house/star trading house. ii. Electronic Mail. radio-paging and end-to-end bandwidth. wherever required. In basic. Voice Mail FDI up to 100% is allowed subject to the condition that such companies would divest 26% of their equity in favor of Indian public in 5 years. Insurance Sector: FDI in Insurance sector in India FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining license from Insurance Regulatory & Development Authority (IRDA). beyond 49% requiring Government approval.

if these companies are listed in other parts of the world. cash and carry wholesale trading. other than atomic reactor power plants. The following kinds of trading are also permitted. medical and diagnostic items. Domestic sourcing of products for exports. Such companies would engage only in business to business (B2B) e-commerce and not in retail trading. FDI up to 100% permitted for e-commerce activities subject to the condition that such companies would divest 26% of their equity in favor of the Indian public in five years. Trading of items sourced from the small scale sector under which. Domestic trading of products of JVs is permitted at the wholesale level for such trading companies who wish to market manufactured products on behalf of their joint ventures in which they have equity participation in India. Test marketing of such items for which a company has approval for manufacture provided such test marketing facility will be for a period of two years. a company can market that item under its brand name.100% FDI is permitted in case of trading companies for the following activities: exports. subject to provisions of EXIM Policy: Companies for providing after sales services. There is no limit on the project cost and quantum of foreign direct investment. bulk imports with ex-port/ex-bonded warehouse sales. Power: FDI in Power Sector in India Up to 100% FDI allowed in respect of projects relating to electricity generation. and investment in setting up manufacturing facilities commences simultaneously with test marketing. . Other import of goods or services provided at least 75% is for procurement and sale of goods and services among the companies of the same group and not for third party use or onward transfer/distribution/sales. ii. Trading of hi-tech items/items requiring specialized after sales service Trading of items for social sector Trading of hi-tech. transmission and distribution. based on technology provided and laid down quality specifications.

and specific cell / tissue targeted formulations. toll roads. ports and harbors. vehicular tunnels.Drugs & Pharmaceuticals FDI up to 100% is permitted on the automatic route for manufacture of drugs and pharmaceutical. India has displaced the US to become the secondmost favored destination for foreign direct investment after China. Highways. says a global services location index by AT Kearney. vehicular bridges. highways. and specific cell / tissue targeted formulations will require prior Government approval. Ports and Harbors FDI up to 100% under automatic route is permitted in projects for construction and maintenance of roads. FDI & INDIA India continues to be the best place to start a business. It has now been named as the . provided the activity does not attract compulsory licensing or involve use of recombinant DNA technology. Pollution Control and Management FDI up to 100% in both manufacture of pollution control equipment and consultancy for integration of pollution control systems is permitted on the automatic route. Roads. In another AT Kearney study. FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs produced by recombinant DNA technology.

242 million.033 million) and Germany (US$ 1. chemicals (US$ 2. 7.07 per cent.59 per cent. US (US$ 6. While FDI equity flows were US$ 5. calculating the total FDI inflows into India by international best practices places the total inflow at US$ 19. .848 million during the corresponding period last year. inflows increased by about two and a half times.789 million). reveals UNCTAD’s World Investment Report. 5. respectively.808 million). according to the RBI’s report on International Investment Position.964 million). with a host of companies lining up major FDI proposals in the next few years. India was the fourth-largest recipient of FDI during 2005-06 and was instrumental in FDI inflows to South Asia surging by 126 per cent. fuels (US$ 2. The principal sources of FDI during August 1991 to June 2007 have been Mauritius (US$ 20. India is in the reckoning.7 billion in 2006-07.892 million). This huge inflow of FDI has in turn reversed the past trend. In fact.465 million) and construction (US$ 1.6 billion in 2006-07. amounting to US$ 22 billion in 2006. electrical equipment (US$ 8. recording a growth rate of 97 per cent. 12. representing a growth rate of 184 per cent. Cumulative FDI inflows during the period August 1991 to July 2007 amounted to US$ 60. Between 2001-02 and 2006-07.979 million). 5.917 million). And the figures appear to be improving by the day.531 million.5 billion in 2005-06. investors’ interest in India is on a high. it increased almost three times to US$ 15.98 per cent.05 per cent and 3. with FDI inflows overtaking the portfolio investment inflows by almost US$ 5.614 million as against US$ 2.89 per cent.215 million).856 million). telecommunication (US$ 4. The principal sectors attracting FDI during August 1991 to June 2007 have been services (US$ 9.03 per cent. Netherlands (US$ 2.880 million). Japan (US$ 2. FDI inflows amounted to US$ 5.912 million). 4. It is evident. UK (US$ 3.443 million).top reformer in South Asia in the annual Doing Business Report issued by the International Finance Corporation (IFC). Singapore (US$ 2.69 per cent. During April-July 2007-08. transportation (US$ 3.585 million). accounting for 41. Clearly.

The FDI cap for telecommunications has been increased to 74 per cent.22 billion over the next fiveseven years to set up 50 malls in India. plans to invest about US$ 30 million in the InfoTech and spare parts manufacturing sector. Nokia plans to invest US$ 100 million in India in the next three years to ramp up its capacity in Chennai. In fact. Israeli mall developer Plaza Center NV will invest US$ 1. nearly 98 per cent of the Indian economy is open to FDI through the automatic route. The Government has approved sweeping reforms in FDI with a first step towards partially opening retail markets to foreign investors. has decided to set up a new plant in Pune. The Centre has divested some of its own powers of approving foreign investments that it exercised through the Foreign Investment Promotion Board (FIPB) and has handed them over to the general permission route under the RBI. up from the earlier ceiling of 49 per cent. Pratt and Whitney. as pointed out by Minister of State for Industries.Steel tycoon Lakshmi Niwas Mittal has pledged an investment of about US$ 20 billion for building two 12-million-tonne steel plants in the states of Jharkhand and Orissa. processing and . Dr Ashwani Kumar. It now allows 51 per cent FDI in single brand retail outlets. It has set up an Investment Commission that will garner investments in the infrastructure sector among others. and plans to increase the limit for investment in the infrastructure sector. makers of Mercedes-Benz cars. the Government has taken on a series of ambitious economic reforms. 100 per cent is allowed in new sectors such as power trading. Vodafone. plans to spend US$ 2 billion a year on capital expenditure in India. Government Initiatives In a bid to stimulate this sector. US-based aircraft engine manufacturer. Eyeing the projected 15 per cent growth in the luxury car market segment. the world's second-biggest mobile firm. DailmerChrysler India Pvt Ltd.

compiled in cooperation with Columbia Programme on International Investment (CPII). captive mining of coal and lignite.4 billion every year during 2007-11. buoyed by the increasing foreign investor’s interest in India. In fact. Taiwan. Singapore. ahead of the US and Russia. FDI limit has been raised to 100 per cent under automatic route in mining of diamonds and precious stones. mutual funds and financial institutions to manage pension funds. cash and carry wholesale trading and export trading. Switzerland and Italy would be set up in the country. Japan. Under the new scheme. Foreign funds would be allowed to own up to 26 per cent stake in entities that would be set up by state-owned banks. Also. the Government has fixed an ambitious target to attract US$ 30 billion during 2007-08. laying of natural gas pipelines. 10 countryspecific windows focusing on investment promotion from the US. UK. petroleum infrastructure. for global FDI in 2007. . South Korea. Looking Ahead According to a report by Economist Intelligence Unit. development of new airports. France.warehousing of coffee and rubber. according to UNCTAD’s world investment report. Germany. India is likely to receive FDI of US$ 20. India has emerged as the second most-attractive location after China. The Government plans to float a joint-venture company with the private sector to set up countryspecific investment promotion centers in India and abroad.

shortages of power and infrastructural deficiencies. Market potential India is the fifth largest economy in the world (ranking above France. among the European investors. Structural and bureaucratic impediments were vigorously fostered. (These indicators are based on purchasing power parity. not short-term profit. is believed to be a good investment despite political uncertainty. It is also the second largest among emerging nations. Lack of enthusiasm among investors The reason being. until fairly recently. despite the practically unlimited possibilities in India for overseas businesses. India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the market. Success in India Success in India will depend on the correct estimation of the country's potential. failed to get the kind of enthusiastic attention generated by other emerging economies.) India is also one of the few markets in the world which offers high prospects for growth and earning potential in practically all areas of business. Italy. due consideration should be given to the factor of the inherent difficulties and uncertainties of functioning in the Indian system.the trip will be well worth the effort. of any size. aspiring to be a global player can. the United Kingdom and Russia) and has the third largest GDP in the entire continent of Asia. after independence from Britain 50 years ago. for long ignore this country which is expected to become one of the top three emerging economies. along with a distrust of foreign business. semi-socialist autarkic economy. Yet.INDIAN MARKET & INVESTMENT Investment in Indian market India. For those who take the time and look to India as an opportunity for long-term growth. bureaucratic hassles. While calculating. Entering India's marketplace requires a well-designed plan backed by serious thought and careful research. India developed a highly protected. underestimation of its complexity or overestimation of its possibilities can lead to failure. Even as today the climate in India . the world's most populous democracy has. No company.

wages are low. and ethnic diversity as wide as all of Europe. Therefore. The projections of further expansion in key areas could snap the already strained lines of transportation unless massive programs of expansion and modernization are put in place. business still has to deal with an inefficient and sometimes still slow-moving bureaucracy. Thus. contradictions and challenges. 6 major religions. poor road conditions (only half of the country's roads are surfaced). many companies still see it as a difficult market.has seen a sea change. low telephone penetration (1. The rapid economic growth of the last few years has put heavy stress on India's infrastructural facilities. Diverse Market. Infrastructural hassles. envisaging and developing a Market Entry Strategy and implementing these strategies when actually entering the market are three basic steps to make a successful entry into India. despite political turmoil. many workers are well educated and speak English. it is advisable to develop a good understanding of the Indian market and overall . port traffic capacity mismatch. Problems include power demand shortfall. The Indian market is widely diverse. Indian Bureaucracy. the country presses on with economic reforms. tastes and preferences differ greatly among sections of consumers. Although the Indian government is well aware of the need for reform and is pushing ahead in this area. Developing a basic understanding or potential of the Indian market. Foreign investors should be prepared to take India as it is with all of its difficulties. investors are optimistic and local stocks are up.4% of population). smashing barriers and actively seeking foreign investment. But there is still cause for worries. India is rightfully quoted to be an incomparable country and is both frustrating and challenging at the same time. The country has 17 official languages. Developing a basic understanding or potential of the Indian market The Indian middle class is large and growing.

Research firms in India can provide the information to determine how. Before jumping into the market. . when and where to enter the market. assisting with configuration of the project. and pushing through the paperwork required. helping develop Indian partners and financing.economy before taking the plunge. There are also companies which can guide the foreign firm through the entry process from beginning to end --performing the requisite research. Developing up-front takes: Market Study Is there a need for the products/services/technology? What is the probable market for the product/service? Where is the market located? Which mix of products and services will find the most acceptability and be the most likely to generate sales? What distribution and sales channels are available? What costs will be involved? Who is the compete Check on Economic Policies The general economic direction in India is toward liberalization and globalization. it is necessary to discover whether government policies exist relating to the particular area of business and if there are political concerns which should be taken into account. finding the land or ready premises. But the process is slow.

improving the regulatory environment and decreasing red tape. improving domestic infrastructure.Policies to Attract Foreign Direct Investment There is keen competition among developed and developing countries to attract foreign direct investment (FDI). such as tax concessions. establishing broad-reaching FDI promotion agencies. cash grants. with different regional authorities pursuing their own strategies and assembling their own baskets of incentives to attract new investments.This drive to lure investment often extends to the sub national level. . and specific subsidies. The resources gathered under this topic look at the many different methods used by policymakers to attract FDI and their effectiveness. Various reforms and strategies have been implemented. Some are critical of the high costs of many of these initiatives. with mixed results. and Engaging in international governing arrangements. These approaches include: providing targeted fiscal incentives. promoting local skills development to meet investor needs and expectations. arguing that it would be more rewarding to improve a country’s general business environment.

subject to license. ports and harbors. FDI permissible under Non-Banking Financial Services now includes "Credit Card Business" and "Money Changing Business". and vehicular tunnels and bridges have been permitted foreign equity participation up to 100 per cent under the automatic route. . The 90-day validity period for final approvals of GDR/ADR issues has been withdrawn and final approval will continue to be valid. except the prevailing restrictions on investment in stock markets and real estate. in all such cases. thereby imparting greater flexibility to issuing companies regarding the timing of issues. Unlisted companies are now permitted to float Euro issues under certain conditions. multilateral financial institutions have been allowed to contribute equity to the extent of the shortfall in NRI holdings within the overall permissible limit of 40 per cent. minimum capitalization norms earlier required for pure financial consultancy services have been relaxed. provided foreign equity does not exceed Rs. transmission and distribution as also roads and highways. GDR/ADR guidelines have been further liberalized in 1998-99. Indian companies are now permitted to issue GDRs/ADRs in the case of Bonus or Rights issue of shares. The Government has also decided to permit FDI up to 49 per cent of the total equity. in companies providing Global Mobile Personal Communication by Satellite (GMPCS) services. All end-use restrictions on GDR/ADR issue proceeds have been removed. Regarding equity participation in private sector banks.Conclusion Several measures to boost FDI have been announced in 1998-99. 1500 crore. Projects for electricity generation. or on genuine business reorganizations duly approved by the High Court. The companies. however. Also.

ahead of the US and Russia. followed by India. showing a growth of 38%. the US. while India’s outflows have been dominated by privatelyowned corporates such as Tata group (Tata-Corus deal). On the increased flow of FDI into India. Interestingly. China polled 52% of the respondents in the Unctad survey. India’s ranking in inward FDI performance index has also improved to 113 in 2006 from 121 in 2005. creating Tata-Corus — the worlds fifth-largest steel maker. the report said. China is the most preferred investment location. 0531 hrs IST. So are several large Japanese MNCs such as Toyota and Nissan. Enclosures: 17 Oct.will be required to get approval from the Department of Economic Affairs for the issue of GDRs/ADRs. a number of US companies such as General Motors and IBM are rapidly expanding their presence in the country. TNN NEW DELHI: India has emerged as the second most-attractive location after China. While China’s outflows increased 32% to $16 billion in 2006. in China FDI outflows are mainly driven by the international expansion of state-owned enterprises due to progressive government policies. the Republic of Korea. the Russian Federation and Brazil. followed by India with 41%. Singapore and Taiwan as the main sources of FDI in developing Asia. for global foreign direct investment (FDI) in 2007. the report pointed out that while foreign retailers such as Wal-Mart had started to enter the Indian market. . According to Unctad’s world investment report. Global FDI inflows soared in 2006 to reach $1. The US received support of 36% and Russia 22%. released here on Tuesday. While both accounted for 10% of total FDI outflows in 2005 in the Asian region. Indian outflows witnessed a four-time rise since 2004. The share of India and China in total global FDI outflows has also risen. In terms of locational choice for foreign investors. Tata Steel acquired Corus Group in early 2007.306 billion. 2007. the report said both China and India are throwing up competition for countries like Hong Kong (China). it increased to 25% in 2007. Commenting on the rising outflow of FDI from the two countries.

globally competitive business practices and . 'Riding on strong balance sheets. in 2006. the sixthlargest in the developing world. as also Africa taking advantage of its cost competitiveness. by the Associated Chambers of Commerce and Industry (Assocham). in 2007-08 overseas investment from India will be around $15 billion .followed by Brazil with 12%. Delhi. coupled with active M&A activities by investors based in the Asian newly-industrializing economies (NIE). good credit ratings and confidence shown by global business community. The main factors fuelling the growing hunger for mergers and acquisitions (M and amp. Sectors such as pharmacy and automobiles will give a major thrust to the FDI outflow. Indian companies' preferred investment destinations are the European countries and the US. China’s outward FDI stock reached $73 billion in 2006. Singapore was ahead of India at the third position. India was the fourth-largest recipient of FDI during 2005-06. said the 'Study on FDI Outflow and amp. Acquisitions Front. FDI inflows to south Asia surged 126%.'s global quest.” the report said. 2007-03-16 19:31:14 (IndiaPRwire. China’s major chunk of overseas expansion involves considerable investment in other developing and transition economies. the report says. India's FDI outflow to exceed inflow in 2007-08: study New Delhi.' said Venugopal Dhoot. Assocham. A) among Indian companies are huge fund supply. president. Indian manufacturing is leading India Inc. India. “India registered a substantial increase in FDI amounting to $17 billion.surpassing foreign direct investment (FDI) inflows in the country. Role of Manufacturing in the Mergers and amp. with China and Hong Kong (China) remaining on top. says a study. Due to increased investments in India. though IT will continue to dominate the scene. according to the report.com) As a confident India Inc has started bidding for more and bigger deals abroad. amounting to $22 billion. The emergence of China and India as important sources of FDI. The bulk of outward FDI flow will be driven mainly by India's booming manufacturing sector. 2007'. said the report released Friday. has led to increased FDI flows from Asia to developed countries as well.

Ranbaxy. 'The total number of deals actually doubled in 2005 from 2004 to reach a figure of close to 150 from 70 in previous year. has offered $1. 'The sectors attracting investments by Corporate India include a whole gamut of sectors . A deals has increased sharply over the past six years from about 37 in 2001 to more than 170 in 2006. volumes and growth prospects. Infosys and Wipro. industrial goods.' According to Assocham. automotive components.' the report said. Bharat Forge. the study noted: 'The Apollo Group of Hospitals may strike cross border deals to expand its global footprint through strategic partners with some of the local hospital chains overseas while pursuing mergers and acquisitions in the US and Europe.favorable regulatory environment. . 'The number of outbound M and amp.metal. beverages. revenue. and mobile communications. besides higher margins.3 billion for Germany's REpower. Talking about specific examples. software and financial services in services. pharmaceuticals. the Indian conglomerates that are upbeat on inorganic growth are the Tata group. In the energy sector. the world's fifth largest wind turbine manufacturer. India's Suzlon Energy Limited. The transactions gathered tremendous momentum in 2005.Indo Asian News Service .' the report said. ONGC.' it added. 'Nicholas Piramal India Ltd plans to invest $50 million over a three-year period in its plants in the UK and India. cosmetics and energy in manufacturing.

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