Topic: FDI Preferable To FII In India

Group No: 05

Bhagyashree Bhagyavant 03
Shubh Chandra 07
Siddhi Chavan 09
Sayali Gadge 11
Saili Kubal 24
Aman Panchal 32
Rahul Yadav 47
 Introduction

 Foreign direct investment (FDI) is when a company takes controlling

ownership in a business entity in another country. With FDI, foreign
companies are directly involved with day-to-day operations in the
other country. This means they aren’t just bringing money with them,
but also knowledge, skills and technology.

 Generally, FDI takes place when an investor establishes foreign

business operations or acquires foreign business assets, including
establishing ownership or controlling interest in a foreign company.  
 What Is a Foreign Institutional Investor (FII)?

 A foreign institutional investor (FII) is an investor or investment

fund investing in a country outside of the one in which it is registered or
headquartered. The term foreign institutional investor is probably most
commonly used in India, where it refers to outside entities investing in the
nation's financial markets.

 The term is also used officially in China.

 Current FDI Participation Limits in India
Sl.
Sector FDI Limit Route
No

Agriculture and allied activities:

·         Floriculture, Horticulture, and Cultivation of Vegetables &
Mushrooms under controlled conditions;
·         Development and Production of seeds and planting
1 100% Automatic
material;
·         Animal Husbandry, Pisciculture, Aquaculture, Apiculture;
and
·         Services related to agro and allied sectors

2 Coal Mining 100% Automatic

Automatic up to
49%
3 Defence 100% Government
Route beyond
49%

Government
4 Print Media 26%
Route
5 Airports 100% Automatic

Automatic up to
49%
6 Telecom 100% Government
Route beyond
49%

Automatic up to
49%
7 Single Brand Retail 100% Government
Route beyond
49%

Automatic up to
8 Private Sector Banks 74% 49% Government
route beyond 49%

Government
9 Public Sector Banks 20%
Route

10 Insurance and Pension 49% Automatic Route

 FDI under sectors is permitted either through Automatic route or Government route.
Under the Automatic route, the non-resident or Indian company does not require any
approval from Government of India. Whereas, under the Government route, approval
form the Government of India is required prior to investment. Proposals for foreign
investment under the Government route are considered by the
respective Administrative Ministry/Department.
 Sectors where FDI is prohibited:
• Lottery Business including Government/private lottery, online lotteries, etc.
• Gambling and Betting including casinos etc.
• Chit funds and Nidhi company
• Trading in Transferable Development Rights (TDRs)
• Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco
substitutes
• Activities/sectors not open to private sector investment such as Atomic Energy and
Railway operations.
How FDI is much better than FII for Indian Economy.

 In FII, the companies only need to get registered in the stock exchange to

make investments whereas in FDI there is a long procedure to enter a
country. FDI Flows in primary market whereas FII flows in secondary
market. The money invested by FII is known as ‘HOT Money’ as the investors
have the liberty to sell it and take it back.
 FDI is more preferred to the FII as they are considered to be the most beneficial
kind of foreign investment for the whole economy.
 FDI flow is considered more stable as it is a long-term investment by corporates
generating jobs and income in the country.
 FII inflow into the stock market, although helps stabilise the rupee, is considered
hot money that can leave suddenly. This tends to have a destabilising effect on
the currency and the economy.
 Foreign Direct Investment only targets a specific enterprise. It aims to increase
the enterprises capacity or productivity or change its management control.
In an FDI, the capital inflow is translated into additional production. The FII
investment flows only into the secondary market. It helps in increasing capital
availability in general rather than enhancing the capital of a specific
enterprise and where money can be taken back also easily.

 Hence, the investment by FDI’s can’t take back money immediately hence it is
preferred more over FII. FII can create a situation of instability in the
country’s economy.
Which factors helped China attract more
FDI than India.
 China has succeeded in attracting much greater FDI than India and
Pakistan due to following its Special Economic Zones policy.
Under this policy, China is offering comprehensive infrastructure
facilities to attract FDI
 Which country has highest FDI inflow in
India?

 Singapore is highest FDI inflow in India.

 FDI inflows in the last seven financial years is over $440

bn, which is nearly 58 % of the total FDI inflow in the last
21 financial years. The top five countries from where FDI
Equity Inflows were received during 2014-2021 are
Singapore, Mauritius, USA, Netherland & Japan.
 Which factors helped China attract more
FDI?
 Most of the factors explaining China's success have also been important
in attracting FDI to other countries: market size, labor costs, quality of
infrastructure, and government policies. FDI has contributed to higher
investment and productivity growth, and has created jobs and a dynamic
export sector.
Different Government Initiatives taken for promoting
FDI India.
To boost domestic and foreign investments in India, the central government
has taken various steps like – Reduced corporate tax rates, easing NBFC and
bank liquidity problems, improving Ease of Doing Business, FDI policy
reforms, compliance burden reduction, policy measures to boost domestic
manufacturing through public procurement orders, Phased Manufacturing
Program (PMP), and various Ministries’ Production Linked Incentives (PLI)
schemes are among them.

Measures such as the India Industrial Land Bank (IILB), the Industrial Park
Rating System (IPRS), the soft launch of the National Single Window System
(NSWS), the National Infrastructure Pipeline (NIP), the National
Monetisation Pipeline (NMP), and others have been put in place to facilitate
investment.
 As a result, in the fiscal year 2020-21, India received the highest ever annual
FDI inflow of US$ 81.97 billion (provisional amount). FDI inflows totaled
US$ 440.27 billion in the last seven financial years (2014-21), accounting for
roughly 58 percent of overall FDI inflows in the last 21 financial years
(2000-21: US$ 763.83 billion). Singapore (28 percent), Mauritius (22
percent), the United States (10 percent), the Netherlands (8 percent), and
Japan are the top five nations from whom FDI equity inflows were received
between April 2014 and August 2021.

 During the same period in the last more than seven years, the
Computer Software & Hardware sector attracted the biggest
percentage of FDI inflows (19%), followed by Service (15%), Trading
(8%), and Telecommunications & Construction (Infrastructure).
 Initiatives to boost FDI

 Empowered Group of Secretaries (EGoS) Project Development Cells (PDCs)

 Production Linked Incentive (PLI) Schemes
 Make in India
 Investment Clearance Cell (ICC)
 One District One Product (ODOP)
 Current Scenario
 FDI
30% flows
in are
2020 expected
even under to fall
the by
most more than
optimistic
scenario
economic for the
support success of
policythe the
measures public health
taken by and
governments to address COVID-19
pandemic and the resulting recession.
 FDI
to flows
drop to
even developing
more because countries
sectors are
thatexpected
have
been severely
including the impacted
primary by
and the pandemic,
manufacturing
sectors, account foreconomies.
than in developed a larger share of their FDI
 FDI could play
economies duringan and
important
after role
the in supporting
crisis through
financial
governmentssupport
in to their
addressing affiliates,
the assisting
pandemic, and
through linkages with local firms.
 FDI
five flows
years, have
and steadily
they could declined
remain over
belowthe past
pre-
crisis
measureslevels
andthroughout
economic 2021
support if the publicare
policies health
not
effective.
Thank You