FOREIGN INVESTMENT IN

INDIA

PRESENTED BY:
ANUSHA
SHYNISHA
TEJ SINGH
 INDIAN ECONOMY
• Eleventh largest ECONOMY

• GDP growth 0.6% (2012, Q3)

• 4th largest by PPP - $4.00 trillion

 TYPES OF FOREIGN CAPITAL
• FOREIGN DIRECT INVESTMENT(FDI)

• FOREIGN INSTITUTIONAL INVESTMENT(FII)

 FDI

Foreign Direct Investment (FDI) occurs when an

investor based in one country (the home
country) acquires an asset in another country
(the host country) with the intent to manage
the asset.
 WHY FDI IN INDIA ?
• Liberal, Largest Democracy, Political
Stability
• Second Largest emerging market (US$2.4
trillion)
• Skilled & Competitive labors force
• Highest rates of return on investment
 WHY FDI IN INDIA ?(CONT…)
• Growth over the past few years averaging
8%
• Destination for BPO, KPO, etc
• Second largest English speaking, scientific,
technical &executive manpower
• Low costs & Tax exemptions in SEZ
 FACTORS REQUIRED TO ATTRACT FDI

• Low cost
• Qualified, educated/skilled labor pool
• Long term market potential
• Access to natural resources
• Population of a country plays an
important role
CONTD…
• Political & environment stability
• Financial incentives (funds from local
govt.)
• Fiscal incentives (exemption from import
duties)
• Indirect incentives (provides land & other
resources)
 MAJOR BODIES CONSTITUTED FOR
FDI
• 1991- Foreign Investment Promotion Board
(FIPB)
• 1996- Foreign Investment promotion council
(FIPC)
• 1999- Foreign Investment implementation
Authority (FIIA)
• 2004- Investment Commission
Secretariat of Industrial Assistance (SIA)
FDI in India are approved through two
routes

• Automatic approval by RBI

• The FIPB route – processing of non-
automatic approval cases
 TYPES OF FDI
• Horizontal FDI

• Platform FDI

• Vertical FDI
 MERITS

• Inflow of equipment & technology

• Competitive advantage & innovation
• Financial resources for expansion
• Employment generation
• Contribution to exports growth
 DEMERITS

• Crowding of local industry

• Repatriation of profits/dividends by
investor
• Conflicts of codes/laws
• Loss of control
 FII
FIIs are defined under SEBI Regulations
as
“ an institution that is a legal entity
established or incorporated outside India
proposing to make investments in India
only in securities. “
 WHY INDIA NEED FII ?
• Large unexploited natural resource

• To share technical know-how

• To bring in new technology in country

• To share good foreign relation

 WHO CAN GET REGISTERED AS FII ?
• Pension funds
• Mutual funds
• Investment Trust
• Insurance companies
• University funds
• Foundations or Charitable trusts
• Asset management companies
• Power of Attorney holders
• Bank
 CATEGORIES OF REGISTERED FIIs
• Normal FIIs:
- not less than 70% in equity related
instruments
- 30% in non-equity instruments

• 100% Debt FIIs:

- permitted to invest only in debt instruments
 AN FII CAN INVEST ONLY IN THE
FOLLOWING :
• Securities in the Primary & Secondary markets
• Units of schemes floated by Domestic mutual
funds & Collective investment scheme
• Dated Government Securities
• Derivatives traded on a recognized stock
exchange
• Commercial paper
• Security receipts
• Indian Depository receipts
 MERITS OF FII

• Large availability of capital

• Unavailability of Corporate Debt
• Increases FOREX reserves
• Increases domestic saving and
investments
 DEMERITS OF FII

• Problems of Inflation
• Adverse impact on exports
• Problem for small investor
• Revival of developed economies
 DIFFERENCE BETWEEN FDI & FII
FDI
1 FDI is when foreign company brings
capital into a country or an
economy to set up a production or
some other facility. FDI gives the
foreign company some control in
the operations of the company
2 FDI involves in the direct production FII is a short term investment mostly in
activity & also of medium to long
term nature
3 It enables a degree of control in the
company
4 FDI brings-long term capital
FII
FII is when a foreign company buys
equity in a company through the stock
markets. Therefore, in this case, FII
would not give the foreign company
any control in the company
the financial markets & it consist of FII
It does not involve obtaining a degree
of control in a company
FII brings short-term capital
 CONCLUSION

• The last two decade of the 20th century witnessed a

dramatic world-wide increase in foreign direct investment
(FDI), accompanied by a marked change in the attitude of
most developing countries towards inward FDI.
• As against a highly suspicious attitude of these countries
towards inward FDI in the past, most countries now regard
FDI as beneficial for their development efforts and compete
with each other to attract it.
• Such shift in attitude lies in the changes in political and
economic systems that have occurred during the closing
years of the last century.