You are on page 1of 26

FDI / Foreign Direct Investment

:
FDI stands for Foreign Direct Investment, a component of a country's national financial accounts.  Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations.

 This

does not include foreign investments in stock markets. Instead, FDI refers more specifically to the investment of foreign assets into domestic goods and services.

The factors propelling the growth of inward FDI include tax breaks.FDIs can be classified as. low interest rates and grants. is backed by the government against all associated risk.  Outward FDI.  . Inward FDI and Outward FDI. also referred to as "direct investment abroad".  Inward FDI occurs when foreign capital is invested in local resources. depending on the direction of flow of money.

During the 1990s. foreign direct investment was one of the major external sources of financing for most countries that were growing economically  .Benefit of Foreign Direct Investment One of the advantages of foreign direct investment is that it helps in the economic development of the particular country where the investment is being made.  This is especially applicable for developing economies.

electricity provide a conducing environment for business environment.investment.Foreign Direct Investment National Policy  Central Level Policies:The central level policies governing various strategic factors affecting business. . land acquisition.

power reforms. port development etc.  The policies have been aligned over the years with an objective to thrust India on the path of economic growth by attracting foreign and indigenous investment and assisting such investments through a positive business environment inclusive convenience in investment norms. tax reforms. Some of the key policies have been discussed below:- .

Foreign Direct Investment Policy Salient Features  FDI up to 100% is allowed under the automatic route in all activities / sectors except the following which will require approval of the Government: . Proposals in which the foreign collaborator has a previous / existing venture / tie up in India in the same or allied field . Activities / items that require an Industrial License .

. All proposals falling outside notified sectoral policy / caps or under sectors in which FDI is not permitted. .. All proposals relating to acquisition of shares in an existing Indian company by a foreign / NRI investor.

100% FDI is permitted under automatic route for setting up of Special Economic Zone  Export Oriented Units EOUs:-Export Oriented Units  Industrial Park:.100% FDI is permitted under automatic route for setting up of Industrial Park  .FDI in areas of special economic activity Special Economic Zones:.

 Software Technology Park Units:the applicant should seek separate approval of the FIPB(Foreign investment promotion board) .

“The Circular 1 of 2011 is a part of ongoing efforts of procedure simplification and FDI rationalization which will go a long way in inspiring \investor confidence.” .The New Consolidated Foreign Direct Investment Policy 2011  Every developing economy today is so called “FDI hungry”. commerce and industry minister Anand Sharma said.  Commenting on the new policy.

During 20092010 FDI in India showed a whopping increase mainly due to grave recession in other parts of the globe but recent decline from April to May really was perturbing . Analyzing the statistics as to FDI in India makes us to arrive at a conclusion that it was only after 2007 FDI has shown a steady increase in India.

 Thus the Indian government has made scores of changes to the FDI policy to attract more foreign direct investment amidst 25% decline in FDI during the eleven month period between AprilFebruary 2010-11 to 18.3 billion. .

The new FDI Policy allow 100 per cent FDI in development and production of seeds and planting material.  Hundred Percent FDI in some area of Farm Sector:.”An FII may invest in the capital of an Indian company either under the FDI Scheme/Policy or the Portfolio Investment Scheme.  .The main features of the new consolidate FDI Policy Foreign Institutional Investor Investment:.

Similarly. . horticulture. floriculture. and cultivation of vegetables and mushrooms under controlled conditions. the tea sector has also been brought under the 100 per cent FDI norm.

with prior approval. subject to stipulated conditions:- . in the following cases.Liberalization of policy for non-cash capital contributions: The existing policy FDI provided for conversion of only ECB/lump-sum fee/Royalty into equity The Government has now decided to permit issue of equity.

Import of capital goods/ machinery/ equipment  Pre-operative/ pre-incorporation expenses  .

. That is a very flexible change in FDI Policy.Pricing of convertible instrument  earlier provided that “The pricing of the capital instruments should be decided/determined upfront at the time of issue of the instruments and will not be change but now the price can be change.

Removal of the condition of prior approval in case of existing joint ventures/ technical collaborations in the “same field”:  earlier Circular of FDI provided that FDI would be subject to the “Existing Venture/ tie-up conditions” as stated in sub-clauses of Clause basically stating that where a non-resident investor has an existing joint venture/ technology transfer/ trademark agreement. .

new proposals in the same field for investment/technology transfer/technology collaboration/trademark agreement would have to be under the Government approval route through FIPB/ Project Approval Board . 2005. as on January 12.

 .  The press release further states that “It is expected that this measure will promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country“.the Government while releasing the FDI Circular 1 of 2011 has in its press release stated that it has decided to abolish this condition.

Globalization  the act or process of globalizing : the state of being globalized. especially : the development of an increasingly integrated global economy marked especially by free trade. free flow of capital. and the tapping of cheaper foreign labor markets .

Industrial.Globalization has tremendously affected world in various different aspects : 1.Globalization has opened the way to procure external financing opportunities to the borrowers. 2.  . Financial.it has provided the surface to the production market with an enhanced access to a wide variety of foreign products and therefore globalization has increased large number of customers for itself.

Economic.3.the United States has come up with the supreme power in the era of globalization as it has strong and wealthy economy.  .  4. Also in the recent decade the People’s Republic of China has skilled with great economic growth. Political.the freedom of exchange of goods and capitals tells us that the markets are interrelated and any kind of economic collapse in one country could be managed by others.

 Cultural. wireless communication or through internet.  .globalization has given birth to tremendous competition and has made the market an open place to excel with skills and quality.Cross-cultural contacts are the result of globalization. Competition.5. Informational.  6.flow of information from one part of the globe to another and even to the remote locations. through satellites.

due to globalization the social network of people is widening and people are able to understand each other in a better way howsoever distant geographically they may be.  .Social.Any kind of technological advances can be communicated to other parts of the world and thus feedback to further enhance it can be procured.  Technical.