POINTS TO BE DISCUSSED:-

• Investment
• Foreign investment
• Foreign direct investment
• Need of foreign investment
• Determinants of foreign investment
• Routs of FDI
• Modes of FDI
• Government policies
• Liberalization of FDI limits in India
• Prohibited FDI sectors
• Impact of FDI on Indian economy
• Categories and segmentation
• FDI benefits
• FDI adverse effects
The commitment of money or
capital to purchase financial
instruments or assets in order to
gain profitable returns.
 Foreign
Investment done by citizens and Investment
government of one country (home through

country) invest in industries of

another country (host country).

Foreign Foreign
Direct Institutional
Investments Investors
FOREIGN DIRECT INVESTMENT
 Foreign direct investment (FDI) is a direct investment
into production or business in a country by an individual
or company of another country, either by buying a
company in the target country or by expanding
operations of an existing business in that country.

 Foreign direct investment is in contrast to portfolio

investment which is a passive investment in the
securities of another country such as stocks and bonds.
 Broadly, foreign direct investment includes :-

1) Mergers and Acquisitions.

2) Building new facilities.

3) Reinvesting profits earned from overseas operations

and intra company loans".
NEED OF FOREIGN INVESTMENT
 Raising the level of investment.
 Up gradation of technology.
 Exploitation of natural resources.
 Development of basic economic infrastructure.
 Improvement in exports competitiveness.
 Improvement in the balance of payments position.
 Benefit to customer.
 Revenue to government.
DETERMINANTS OF FOREIGN INVESTMENT

 Political stability.
 Legal and regulatory framework.
 Size of market.
 Prices and exchange rate.
 Access to basic input.
 Automatic Route Government

No permission required Approval /License required.

 • Mergers and Acquisitions
• Horizontal FDI
By • Vertical FDI.
*BackwardVertical FDI*Forward
Target Vertical FDI

• Resource-Seeking
• Market-Seeking
By • Efficiency-Seeking
• Strategic-Asset-Seeking
Motive
 Horizontal FDI:-

1) Arises when a firm duplicates its home country-based

activities at the same value chain stage in a host country
through FDI.

2) Horizontal FDI decreases international trade as the

product of them is usually aimed at host country; the two
other types generally act as a stimulus for it.
 Platform FDI:-

Foreign direct investment from a source country into a

destination country for the purpose of exporting to a
third country.

 Vertical FDI:-

Takes place when a firm through FDI moves upstream or

downstream in different value chains i.e., when firms
perform value-adding activities stage by stage in a
vertical fashion in a host country.
 Greenfield investment: It is the direct
investment in new facilities or the expansion of
existing facilities. It is the principal mode of
investing in developing countries like India.

 Mergers and Acquisition: It occurs when a

transfer of existing assets from local firms takes
place.
GOVERNMENT POLICIES
Government policies regarding foreign investment can be
discussed under the following heads

 Pre-liberalization policies.
 Liberalization policies.
 New policies relations.
 LIBERALIZATION OF FOREIGN DIRECT
INVESTMENT LIMITS IN INDIA

 FDI in India is subject to certain Rules and Regulations

and is subject to predefined limits in various sectors
which range from 20% to 100%.

 There are also some sectors in which FDI is prohibited.

 FDI Limits are reviewed and modified by the

government from time to time.
 To attract more foreign investment in India, the Union
Government constituted a committee named, Arvind
Mayaram Committee headed by the Economic Affairs
Secretary.

 The Government approved the recommendations given by

the Arvind Mayaram Committee to increase FDI limits in
12 sectors out of the proposed 20 sectors, including crucial
ones such as defence and telecom in July 2013.
Some of the important changes made in the Existing FDI
Limits are provided below:

1) Sector/activity- Defence
Before proposal- 1) % of FDI/Equity- 26%
2) Entry code- Government route
After proposal- 1) % of FDI/Equity- no change
2) Entry code- CCS

2) Sector/activity- Insurance
Before proposal- 1) % of FDI/Equity- 26%
2) Entry code- Automatic route
After proposal- 1) % of FDI/Equity- 49%
2) Entry code- Automatic route
3) Sector/activity- Telecom
Before proposal- 1) % of FDI/Equity- 74%
2) Entry code- Automatic up to 49% and
Government from 49%-74%
After proposal- 1) % of FDI/Equity-100%
2) Entry code- Automatic up to 49% and
Government from 49%-74%

4) Sector/activity- Tea plantation

Before proposal- 1) % of FDI/Equity- 100%
2) Entry code- Government route
After proposal- 1) % of FDI/Equity- 100%
2) Entry code- Automatic up to 49%
Government 49% to 100%

5) Sector/activity- Asset reconstruction company

Before proposal- 1) % of FDI/Equity-74% of paid-up capital of ARC
(FDI+FII)
2) Entry code-Government Route
After proposal- 1) % of FDI/Equity- 100%
2) Entry code-Automatic up to 49%
Government 49% to 100%
6) Sector/activity- Petroleum & Natural Gas
Before proposal- 1) % of FDI/Equity- 49%
2) Entry code- Government Route
After proposal- 1) % of FDI/Equity- 49%
2) Entry code-Automatic Route

7) Sector/activity- Commodity Exchanges

Before proposal- 1) % of FDI/Equity-49% (FDI & FII) + [Investment by
Registered FII under Portfolio
Investment Scheme (PIS) will be
limited to 23% and Investment
under FDI Scheme limited to
26% ]
2) Entry code- Government Route
After proposal- 1) % of FDI/Equity-
2) Entry code- Automatic Route

8) Sector/activity- Power Exchanges

Before 8) Sector/activity- Power Exchanges
Before proposal- 1) % of FDI/Equity-49% (FDI &FII) FDI limit of 26 per cent
and an FII limit of 23 per cent of the paid-up
capital
2) Entry code- Government Route
After proposal- 1) % of FDI/Equity- 49%
2) Entry code- Automatic Route
9) Sector/activity- Stock Exchanges/ Clearing Corporations
Before proposal- 1) % of FDI/Equity- 49% (FDI &FII) FDI limit of 26 %
and an FII limit of 23 per cent of the
paid-up capital
2) Entry code- Government Route
After proposal- 1) % of FDI/Equity- 49%
2) Entry code-Automatic Route

10) Sector/activity- Credit Information Companies

Before proposal- 1) % of FDI/Equity- 49% (FDI & FII)
2) Entry code- Government Route
After proposal- 1) % of FDI/Equity- 74%
2) Entry code-Automatic Route

11) Sector/activity- Courier Services

Before proposal- 1) % of FDI/Equity-100%
2) Entry code- Government Route
After proposal- 1) % of FDI/Equity- 100%
2) Entry code-Automatic Route
12) Sector/activity- Single Brand product retail
trading
Before proposal- 1) % of FDI/Equity-100%
2) Entry code- Government Route
After proposal- 1) % of FDI/Equity- 100%
2) Entry code-Automatic up to 49% Government route
beyond 49% and up to 100%
FDI PROHIBITED IN:-
 Gambling and Betting or Lottery Business,
 Business of chit fund,
 Nidhi Company,
 Housing and Real Estate business,
 Trading in Transferable Development Rights(TDRs),
 Retail Trading,
 Atomic Energy Agricultural or plantation activities or
Agriculture (excluding Floriculture, Horticulture,
Development of Seeds,
 Arms and ammunition.

 Atomic Energy. Railway Transport.

 Coal and lignite.

 Mining of iron, manganese, chrome, gypsum, sulphur,

gold, diamonds, copper, zinc.

 Animal Husbandry,

 Pisciculture and Cultivation of Vegetables, Mushrooms etc.

under controlled conditions and services related to agro
and
allied sectors) and Plantations(other than Tea
plantations).
IMPACT OF FDI ON INDIAN ECONOMY
• Investment provides the base and pre-requisite
for economic growth and development.

• Apart from a nation’s foreign exchange reserves,

exports, government’s revenue, financial
position, available supply of domestic savings,
magnitude and quality of foreign investment are
necessary for the well being of a country.
• FDI is the safest type of international capital flows out of
all the available sources of external finance available.

• FDI provides a win – win situation to the host and the

home countries. Both countries are directly interested in
inviting FDI because they benefit a lot from such type of
investment.

• FDI can help to raise the output, production and export

at the sectoral level of the Indian economy
• It is advisable to open up the export oriented sectors and
higher growth of economy could be achieved through the
growth of these sectors.

• FDI affects the GDP of a country directly and hence they

are positively correlated.
MAJOR INDIAN RETAILERS : CATEGORIES
Format Description Retailers
Hypermarkets Offering basket of product Spencer's, Big
bazaar
Cash and Carry Bulk-buying requirement Bharti-wall-mart
Departmental stores Large layout, Wide merchandise Lifestyle , Globus
mix
Supermarkets Household product as well as Apna bazaar , food
food as integral part of the bazaar
service
Shop-in-shop Shops located in shopping malls Navras ( big bazaar)
Specialty stores Focus on individual product type Brand Factory
Category killers Particular segment The LOFT
Discount stores Branded product at discounted Subhiksha, Levi's
prices outlet
Convenience stores Small Retail stores In and out
Retail Segment Percentage holding Major retailers
SEGMENTATION
in sector
Food and grocery 63% Reliance fresh, Café
brio, food bazaar
Clothing, textile and 9% Westside, shoppers
fashion stop, glob us
Jewellery 5% Tanishq
Catering services 5% IRCTC
Consumer durable 4% Viveks, vijay sales,
Croma
pharmaceuticals 4% Piramal group
Entertainment 3% Bowling co.,
Furnishing, utensils 3% Hometown, Tangent
Concept
Mobile handsets 2% The mobile store,
 FDI BENEFITS
Economic Growth

Linkages and
spillover to Trade
domestic firms

Technology
diffusion and Employment
knowledge and skill levels
transfer
 ADVERSE EFFECTS OF FDI
 Foreign enterprises obstruct the growth of indigenous
industrial entrepreneurship.
 When foreign investments compete with home
investments, profits in domestic industries fall, leading
to fall in domestic savings.
 Foreign firms may influence political decisions in
developing countries.
 The cost of foreign capital for the host country tends to
be very high.
 Contribution of foreign firms to public revenue through
corporate taxes is comparatively less.
THANK YOU