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International Trade and Finance FDI in India

Prepared By: Kavita Patil : Roll No.01 Kalp Vaghela : Roll No.07 Samir Sahoo : Roll No.09

INTRODUCTION
 Foreign Direct Investment, or FDI, is a type of investment that involves the injection of foreign funds into an enterprise that operates in a different country of origin from the investor.

 It usually involves participation in management, joint venture, transfer of technology and expertise.
 FDI can be classified: Inward FDI and Outward FDI  It does not include foreign investment into the stock markets.  FDI is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.

43 billion.  FDI in 2009-10 was $25. FDI stood at $31. a significant decrease from both 2008 and 2009  Foreign direct investment (FDI) in India crossed $30 billion. construction activities and computer software and hardware.  The sectors which attracted higher inflows were services. .  Mauritius. telecommunication.4 billion. FDI into India declined to $19.8 billion  In 2010-11. Singapore. the US and the UK were among the leading sources of FDI  In 2008-09.  Over the next two years. according to Morgan Stanley. India could attract FDI worth $ 80 billion.FDI in india  A recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010–2012.

FDI benefits Economic Growth Trade Employment and skill levels Technology diffusion and knowledge transfer Linkages and spillover to domestic firms .

04% -33.DIPP’S – FINANCIAL YEAR-WISE FDI EQUITY INFLOWS S.72% -24.11% 47. (April .49% 96.12% 72.March) Amount of FDI Inflows %age growth over previous year (in FINANCIAL YEARS in Crores Rs. Financial Year Nos.73% 27.10% 125. in US$ million terms of US $) 2000-2012 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 April Jan'12) Cumulative Total 10733 18654 12871 10064 14653 24584 56390 98642 142829 123120 88520 122307 723367 2463 4065 2705 2188 3219 5540 12492 24575 31396 25834 19427 26192 160096 65.46% -19.80% 1 2 3 4 5 6 7 8 9 10 11 12 .76% -17.

Top investing countries 2% 5% 7% 4% 4% 3% 2% Mauritius Singapore USA UK 9% Netherlands Japan 11% 53% Cyprus Germany UAE France .

The region accounted for 20% of the total FDI.416 billion (Rs 6. Himachal Pradesh .$904 million (Rs 4. National Capital Region NCR received $1. Punjab. West Bengal.43 billion (Rs 11. 3. Sikkim.154 crore). Andaman & Nicobar Islands These states attracted the third highest FDI inflows worth $1. Maharashtra Maharashtra received the lion's share of the FDI $2. Haryana.India's Hottest FDI Destinations 1.141 crore) . which is 35% of the total FDI inflows in to the country..85 billion (Rs 8. Karnataka .476 crore) in FDI during the period.050 crore) 4. 2.333 crore) 5.$936 million (Rs 4.

Up to 100% under ‘Automatic Route’ in all sectors except a small negative list Up to 74/51/50% in 111 Sectors under ‘Automatic Route’ 100% in some sectors Up to 51% under ‘Automatic Route’ for 35 Priority Sectors Allowed selectively up to 40% Pre 1991 1991 1997 8 2000 Post 2000 .The Roadmap so far… Sectoral caps raised. Conditions relaxed.

through AD        Allowed for Most sectors Limits : Sectoral caps/ stipulated sector specific guidelines Inward remittances through proper banking channels Pricing valuations prescribed Post facto filing with 30 days of fund receipt Filings within 30 days of share allotment Includes Technical Collaboration/ Brand Name/ Royalty    Foreign Investment Promotion Board (FIPB) Only for cases other than Automatic Route and those mentioned in sectoral policy Applies to cases with existing venture/ tie up in ‘same filed’ Applies to investment over 24% in SSI reserved items  9  .…Foreign Direct Investment Policy… FDI Guidelines for Investing in Indian Wholly Owned Subsidiary / Joint Venture Automatic Route Government Route No Prior Regulatory Approval but only Post Facto Filings to RBI.

…Foreign Direct Investment Policy FDI limits – Illustrative list Automatic Route (Illustrative) Prior Approval (Illustrative) Negative List (Illustrative) 100% 49% 100% 100% 100% 26% 51%            Note: NBFC (minimum capitalization norms) IT / ITes Financial services(a) Telecom Sector (74% cap)(a) Insurance (26 % cap)(a) Real Estate(a) Special Economic Zones Infrastructure Shipping Manufacturing sector Hotels and tourism   Existing Airports Asset Reconstruction Companies Titanium Minerals Broadcasting (a) Cigars & Cigarettes Courier Print Media (a) Single brand retailing             Agriculture (b) Atomic energy Retail trading (except single brand up to 51%) Lottery. Nidhi company Trading in Transferable Development Rights  10   (a) Sector specific guidelines (b) Subject to certain exceptions . betting and gambling Chit fund.

3 and 4 of 2009 issued to downstream investment on indirect FDI and • • • FM stressed the need for a consolidated FDI policy in Budget 2010-11 Draft consolidated policy issued in late 2009 for public comments Consolidated FDI policy issued effective from 1 April.Setting the context… • • • Contribution of FDI in India’s economic development is an acknowledged fact. From inception policy subject to extensive amendments provide clarity from time to time through Press Notes. 2010 11 . circulars and clarifications Press Note 2.

Press Notes. Savings for actions taken under earlier press notes Two kinds of foreign investment – (i) FDI and (ii) Foreign Portfolio Investment (FPI) FDI – strategic long term relationship and establish a lasting FPI – no • interest intention to influence the management of the investee entity 12 . Press Releases and Clarifications issued by DIPP Underlying rationale to promote FDI through a policy framework that is transparent. predictable. simple and clear and which reduces regulatory burden Consolidated FDI Policy – Salient Features • • As an investor friendly measure. a new Circular is proposed to be issued every six months Press Notes/Press Releases/Clarifications on FDI in force as of 31 March 2010 will stand rescinded.• • Consolidated document of all foreign investment policies /regulations under FEMA.

Compulsorily Fully Convertible Preference Shares and Compulsorily Fully Convertible Debentures • • Warrants.subject to ECB guidelines • Existing NCP/ OCP/ PCP on cut off date outside sectoral cap till current maturity 13 .FDI Policy – Principles • Capital defined as Equity. partly paid up shares other hybrid instruments not permitted for FDI Investment in other instruments such as: − Non Convertible Preference Shares/ Debenture (‘NCP’) − Optionally Convertible Preference Shares/ Debentures (‘OCP’) − Partially Convertible Preference Shares/ Debentures (‘PCP’) treated as External Commercial Borrowings (‘ECB’) .

FDI Policy – Principles • FDI permitted in: − Indian companies including micro & small enterprise − Partnership firm/ proprietorship concern – only by NRI/PIOs − Trust only in the form of VCFs • • • Not permitted in LLPs or any other entities – under consideration Investment by FIIs permitted upto 10% for individual FII and 24% in aggregate Pricing of capital instruments (including conversion price for convertible instruments) is now required to be decided upfront at the time of issue of instruments • Investment by FVCI in DVCF set up as trust would now require specific Government approval. FVCI can directly invest subject to FDI policy 14 .

application to FIPB along with supporting documents All applications to be placed before FIPB within 15 days FIPB empowered to prioritise applications based on sector.FDI Policy – Procedural Aspects • • Intimation of receipt of share application money – within 30 days Purpose of inward remittance clearly stated on FIRC Allotment of shares within 180 days of receipt of funds Funds against which shares not allotted to be refunded Reporting in Form FC GPR within 30 days of allotment • • • • • • • In case of Approval route. export potential etc. Violations of regulations attract penal provisions under FEMA 15 .

Sector wise distribution Services Sector 6% 6% 10% Construction Activities 31% 11% Power Automobile Industry Metallurgical Industries 12% 13% Petroleum & Natural Gas Chemicals 4% 4% 3% Computer Software & hardware Telecommunications Housing & real Estate .

 Ranked 5th in electrical machinery and apparatus.  12th in machinery and equipment and motor vehicles.Manufacturing sector  India ranks 2nd most favored destination for foreign investments after China.  6th position in the basic metals category. leather products. Service sector  India's large service industry accounts for more than 50% of the country's GDP.  India ranks among the top 12 producers of manufacturing value added (MVA).  10th in leather. USA and Italy. .  In textiles.  7th in chemicals and chemical products. refined petroleum products and nuclear fuel. the country is ranked 4th after China.

FDI IN RETAIL . FDI IN RETAIL .  Increase in real estate prices and marginalize domestic entrepreneurs .ADVANTAGES  Generates huge employment.  Increased investment in technology.  The entry of large global retailers such as Wal-Mart would kill local shops and millions of jobs.  The consumer gains from the wide variety of choices and a more diversified basket.  The huge tax revenue generated.DRAWBACKS  Foreign Players would displace the unorganized retailers because of their superior financial strengths.

FDI and economic development  FDI has an important impact on country’s trade balance. Singapore. opening up export markets. This could be attributed to the fact that R&D sector is not receiving enough FDI as per its requirement.  Research and Development expenditure shows unexpected negative sign. but this sector is gaining more attention in recent years. transfer of technology. agriculture services and agriculture machinery. skill and the general business climate.  India’s share in global FDI has increased considerably. optimal utilization of human capabilities and natural resources. access to global managerial skills and practices. and Russia.  Indian economy is largely agriculture based and here is plenty of scope in food processing. but the pace of FDI inflows has been slower than China. FDI in this sector should be encouraged. . access to international quality goods and services and augmenting employment opportunities. increasing labor standards and skills.  FDI also provides an opportunity for technological transfer and up gradation. making industry internationally competitive. Brazil.

red tapism. productive capacity. savings. .  The policy makers should focus more on attracting diverse types of FDI and should design policies where foreign investment can be utilized as means of enhancing domestic production. and exports and also as medium of technological learning and diffusion and also in providing access to the external market. sectors with high income elasticity of demand. environmental issues.Recommendations  The government should provide additional incentives to foreign investors to invest in states where the level of FDI inflows is quite low.  Government must target at attracting specific types of FDI that will be able to generate spillovers effects in the overall economy like investing in human capital. so that they can attract inflows at their own level. R&D activities. and the rampant corruption.  Government must exercise strict control over inefficient bureaucracy.  Government should ensure the equitable distribution of inflows among states and must give more freedom to states. so that investor’s confidence can be maintained for attracting more FDI inflows to India.

with its skilled labor and manpower has the potential to overtake China as the most preferred destination for Foreign Investments.  Multinational firms have increased the degree of competition in hostcountry markets which will force existing inefficient firms to invest more in physical or human capital.  India.  FDI has lead to indirect productivity gains through spillovers. .  FDI has provided better access to technologies for the local economy.Conclusion  The increased flow of FDI in a country has given a major boost to the country's economy.  Service sector has been the most sought after sector in India for Foreign Direct Investments.  Hence measures must be taken in order to ensure that the flow of FDI in our country continues to grow.

"If there is one place on the face of this Earth where all the dreams of living men have found a home when man began the dream of existence. it is India". French philosopher 22 . Romain Rolland.