Presented By:

NEENU .T.HARI
NEETHU SUNNY
NESRIN.K.A
REEBA MARY JOSE
SAJISH.V.S
•FDI is a long –term investment by a foreign direct investor
in an enterprise resident in an economy other than that in
which the investor is based.

•FDI relationship consists of a parent enterprise and a foreign

affiliate, which together form a Transnational Corporation.
Greenfield Investment

Merger & Acquisitions

Horizontal FDI

Vertical FDI
 Backward Vertical FDI
 Forward Vertical FDI
 1900-1918

 Until the end of First World War, 1918, the foreign investment in India was
totally dominated by the British companies.
 Trading and Services sectors were the major areas of foreign investments
 11 manufacturing companies from UK, Europe, USA
 British manufacturing companies like Unilever, ITC, Glaxo, ICI, GEC,
Goodlass Nerolac, and Britania Biscuits
 American companies like Chicago Pneumatics and Ludlow Jute, the Dutch
company, Margarine Unie
 Japanese company, Denso
 Stable colony with abundant natural and mineral resources
 India ranked eighth as a host to foreign investments in 1914 
 1919-1942
 The USA and Japan emerged as powerful nations after the World War-I
 Trade and investment from the USA increased in India during this period.
 American companies General Motors, Ford Motors, and Colgate Palmolive.
 Trade investments from Japan increased
 Japan exported more than half (57 %) of its cotton yarn and 28% of its piece
goods to India in 1932.
 It also imported as much as 47% of its raw cotton requirement from India in
1928, but the volume increased to more than half (51%) in 1937
 
 1943-1961
 Local industries largely favored the flow of foreign technology and
foreign capital from around the world.
 Germany and the United Kingdom set up large-scale
industrial projects in India.
 amount of FDI and the number of foreign joint ventures in
India increased
 With India becoming free from the British rule in 1947,
the opportunity for companies from Europe and America arose.
 Share of FDI in manufacturing sector also increased significantly during this
period, due to the FDIpolicy guidelines of the Government of India
 1962-1977
 During this period Foreign Exchange Regulation Act (FERA)1973.
 Foreign companies also came under the Monopolies and Restrictive Policy
 (MRTP), 1969. MRTP (1969) Act restricted companies on the
 size of operation and the pricing of products and services
 closure of foreign companies like Coca Cola in 1977 and IBM in 1978.
 As a result of the changes in the policy, nearly 80 foreign companies ceased
their operations in India and the number of joint ventures from all the foreign
countries decreased dramatically.
 number of foreign collaborations reduced from 464 in the year 1961 to 131 in
the year 1968.
 Unilever and ICI stay back
 1978-1990
 The year 1978 marked liberalization and globalization
process of FDI in India. GOI made a series of changes in the export and
import policies in India during this period
 USA emerged to be the biggest contributor to the number of joint ventures in
India.
 Germany was the second largest contributor
 The total number of joint ventures also increased from 307 in 1978 to 703 in
1990.
 FDI rose from 89 million INR to 1238 million INR, an increase of over 13 times
 The year 1991 marks a new growth phase of FDI in India with an all time high
flow of FDI.
 1991-2000
 Following the Industrial Policy (1991) 145 foreign companies registered in India
within a span of 10 years from 1991-2000.
 Companies like GM, Ford, and IBM divested from India in the 1950s and 1970s
reentered India
 Asian companies like Daewoo Motors, Hyundai Motors and LG Electronics
 S. Korea: Matsushita Television and Honda.
 IMF and World Bank provide loans to India on the conditions that India will make
major changes to liberalize trade and investments in India
 GOI replaced FERA, 1973 that regulated all foreign exchange
transactions with Foreign Exchange Management Act (FEMA), 1999.
 The objectives of FEMA : facilitate external trade and payments and to promote orderly
development and maintenance of foreign exchange market
 The total number of foreign collaborations increased from 976 in the year 1991
to 2144 in the year 2000.
 amount of FDI increased from 5156 million INR to 3737 million INR
 Present Picture
India: Fourth largest economy in terms of Purchasing
Power Parity
Tenth most industrialized economy
GDP growth rate of 8.1% - Second highest in the
world.
 FDI inflows 1.74 bn in Nov 2009
Financial institutional investors(FII) inflows:
For the period, July 2003 – Jan 2004 FII inflow has
exceeded USD 7 bn, which is more than the cumulative
FII inflow in the last five years.
•Young Demographic Profile- 54% population below 25
years
•Abundant availability of Skilled Human Resources
•Adequate natural resources and raw materials
•Large and growing domestic market
• Established rule of law and a vibrant three tiered
democracy
Three types:
• Automatic
•FIPB Route
•CCFI Route
 Routes available for FDI:

1st route:
Automatic Route - No prior Government approval is required if
the investment to be made falls within the sectoral caps
specified for the listed activities. Only filings have to be made
by the Indian company with the concerned regional office of
the Reserve Bank of India (“RBI”) within 30 days of receipt of
remittance and within 30 days of issuance of shares
All items/activities for FDI investment up to 100% fall
under the Automatic Route except the following:

All proposals that require an Industrial License.

All proposals in which the foreign collaborator has a
previous venture/ tie up in India
All proposals relating to acquisition of existing shares
in an existing Indian Company by a foreign investor.
All proposals falling outside notified sectoral policy/
caps or under sectors in which FDI is not permitted.
2nd Route:

FIPB Route –
Investment proposals falling outside the automatic route would
require prior Government approval. Foreign Investment requiring
Government approvals are considered and approved by the Foreign
Investment Promotion Board (“FIPB”). Decision of the FIPB
usually conveyed in 4-6 weeks. Thereafter, filings have to be made
by the Indian company with the RBI
For all activities, which are not covered under the Automatic
Route
Composite approvals involving foreign investment/ foreign
technical collaboration
Published Transparent Guidelines vs. Earlier Case by Case
Approach
Downstream Investment
3rd Route:

CCFI Route:
Investment proposals falling outside the automatic route and
having a project cost of Rs. 6,000 million or more would
require prior approval of Cabinet Committee of Foreign
Investment (“CCFI”). Decision of CCFI usually conveyed
in 8-10 weeks. Thereafter, filings have to be made by the
Indian company with the RBI
- Investment proposals falling within the automatic route
and having a project cost of Rs. 6,000 million or more do
not require to be approved by CCFI
 1. Petroleum Sector (except for private sector oil refining)/ Natural
Gas/LNG, Pipelines
 2. Investing companies in Infrastructure & Services Sector
 3. Defence and Strategic Industries
 4. Atomic Minerals
 5. Print Media
 6. Broadcasting
 8. Postal services
 9. Courier Services
 10. Establishment and Operation of satellite
 11. Development of Integrated Township
 12. Tea Sector
Gambling and Betting
Lottery Business
Business of chit fund or Nidhi Company
Housing and Real Estate business except for the
development of townships, housing, built-up
infrastructure and construction development project
Retail Trading
Atomic Energy
Agriculture (excluding Floriculture, Horticulture,
Development of Seeds, 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)
 FDI includes investment by
• a non-resident;
• a non-resident incorporated entity (foreign company),
• a non-resident Indian,
• Person of Indian Origin,

FDI includes investment through

• Issue of Preference shares
• American Deposit Receipts (ADR)/Global Deposit
Receipts (GDR)
• Foreign Currency Convertible Bonds
Industrial sector-
• Manufacturing- permitted up to 100% on the automatic route in all
manufacturing activities except for cigarettes ; defence related
items; and items reserved for SSI sector.
• Mining Sector -100% is permitted on the automatic route
exploration and mining of diamonds, precious stones, gold, silver
and minerals. 100% in coal and lignite mining for captive
consumption by power projects, and iron and steel, cement
production and other activities permitted under the Coal Mines
(Nationalisation) Act, 1973.
• Electricity Sector- 100% is permitted on the automatic route in
generation, transmission, distribution of electricity and also power
trading subject to the provisions of the Electricity Act, 2003
 Infrastructure sector- 100% is permitted on the
automatic route in roads and highways, ports and greenfield
Airport projects. FDI up to 100% is permitted in existing
airport project but the same requires prior approval for FDI
beyond 74%.
 Services sector - Many of the activities under the
Services sector attract caps on foreign equity and are subject
to sectoral regulations.
26 %cap in Print media: Publishing newspaper and
periodicals dealing with news and current affairs; and in
Insurance
49 %in Broadcasting; Air transport services and Stock
Exchanges
 51% in single brand product retailing
74% in Telecommunication services; ISP with gateways,
radio-paging, end-to-end bandwidth; Establishment and
operation of satellites; and Private sector banks
 AGRICULTURE- FDI is not allowed in agriculture and
plantation activities except tea plantation. In the tea sector FDI
is allowed up to 100% with prior Government approval.

 FDI is allowed in certain activities up to 100% on the

automatic route. These are Floriculture, Horticulture,
Development of Seeds, Animal Husbandry, Pisciculture, and
Cultivation of Vegetables, Mushrooms under controlled
conditions and services related to agro and allied sectors.

REAL ESTATE -FDI is not permitted in Real Estate business

i.e. buying and selling of properties.
 METHODS
The foreign direct investor may acquire 10% or more of the
voting power of an enterprise in an economy through any
of the following methods:
by incorporating a wholly owned subsidiary or company
by acquiring shares in an associated enterprise
through a merger or an acquisition of an unrelated
enterprise
participating in an equity joint venture with another
investor or enterprise
 derogation from regulations (usually for very large projects)
FOREIGN DIRECT INVESTMENT INCENTIVES MAY
TAKE THE FOLLOWING FORMS:

low corporate tax and income tax rates

tax holidays
other types of tax concessions
preferential tariffs
special economic zones
investment financial subsidies
soft loan or loan guarantees
free land or land subsidies
relocation & expatriation subsidies
job training & employment subsidies
infrastructure subsidies
R&D support
 ADVANTAGES
it helps in the economic development of the particular
country where the investment is being made.
used for the purpose of making contributions to the
revenues of corporate taxes of the recipient country
helps in the creation of new jobs in a particular
country
assists in increasing the income
opens up the export window
borrow finance at lesser rates of interest
FDI SECTORAL GUIDELINES
AIRPORTS
TELECOM
DOMESTIC AIRLINES
DRUGS & PHARMACEUTICALS
INSURANCE
MINING
PETROLEUM
PRIVATE SECTOR BANKING:
PRINT MEDIA
BROADCASTING
INFRASTRUCTURE:
 DETERMINANTS
 For a TNC to invest successfully abroad it must possess
advantages which no other firm posses (O), the country it wishes
to invest in should offer location advantages (L), and it must be
capable of internalizing operations (I). Internalization is
synonymous with the ability of firms to exercise control over
operations essential for the exploitation of ownership and
location advantages.
It is location advantages that form the core of much of the
discussion on the determinants of FDI in developing countries.
The two other attributes necessary for FDI are taken as given
from the perspective of developing countries.
 CONCLUSION OF THESE STUDIES

* Host countries with sizeable domestic markets, measured by gross

domestic product (GDP) per capita and sustained growth, measured
by growth rates of GDP, attract relatively large volumes of FDI.
* Resource endowments of host countries, including natural resources
and human resources are a factor of importance in the investment
decision process of TNCs.
* Infrastructure facilities (including transportation and
communication networks) are an important determinant of FDI.
* Macroeconomic stability, signified by stable exchange rates and low
rates of inflation, is a significant factor in the FDI decisions of TNCs.
Cont’d……
 Political stability in the host countries is a significant factor in
the investment decision process of TNCs.
 A stable and transparent policy framework towards FDI is
attractive to potential investors.