Foreign Direct Investments in India

Presented By: Bhupendra Sharma

as also through mutual exchange of technology and knowledge Globalisation has made markets highly competitive and there is remarkable growth of new service products € .Introduction € € World is perceived as a global village Globalization is the integration of economies of world through uninhibited trade and financial flows.

€ Globalization implies opening up of the economy to Foreign Direct Investment by providing facilities to foreign companies to invest in different fields of economic activity .In context to India.

Foreign Direct Investments € India offers greater incentives to encourage the foreign direct investments (FDI) inflows into its economy FDI has become a significant part of capital formation in the country FDI usually flows as a bundle of resources and skills into the economy These skills tend to spill over to domestic enterprises in the host country € € € .

Foreign Direct Investment Purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control .

Approval needed. Decision generally Decision generally within 4-6 weeks within 4-6 weeks .Investing in India ² Entry Routes Investing in India Automatic Route Automatic Route Automatic Route General Rule General Rule General Rule No prior permission No prior permission No prior permission required required required Inform Reserve Bank Inform Reserve Bank Inform Reserve Bank within 30 days of within 30 days of within 30 days of inflow/issue of shares inflow/issue of shares inflow/issue of shares Prior Permission Prior Permission Prior Permission (FIPB) (FIPB) (FIPB) By Exception By Exception Prior Government Prior Government Approval needed.

Benefits of Foreign Direct Investment € FDI ensures a huge amount of domestic capital. production level. and employment opportunities which is a major step towards the economic growth of the country FDI has been a booming factor that has bolstered the economic life of India Increase investment level and thereby income & employment Increase tax revenue of government Facilitates transfer of technology Encourage managerial revolution through professional management Increase exports and reduce import requirements monopolies €        Increase competition and break domestic Improves quality and reduces cost of inputs .

FDI policy in India FDI is not allowed in the sectors of arms and ammunitions. FDI is allowed up to 100% equity participation. with the capping amount as Rs. extraction of coal and lignite and mining industry € In infra-structure development.1500 crores € In finance sector. atomic energy. FDI is allowed up to 49% € . railway system. FDI is allowed up to 40% € In telecom industry.

Ports and Harbors ] Industrial model towns/industrial parks ] Hotels & Tourism ] Pollution Control and Management ] Advertising & Film industry ] Power generation (hydro-electric. oil or gas based) ] Information Technology including E-Commerce . coal/lignite.100% FDI permitted in India ] Engineering & Manufacturing sectors ] Roads & Highways.

size of population. income level etc Government policies: Policies like foreign investment. profits. foreign exchange control. tariffs etc. labor .Factors affecting FDI € € Profitability: Attract where return on investment is higher Costs of production: Encouraged by lower costs of production like raw materials. remittances. nature of important political parties and relations with other countries. foreign collaboration. € € € Economic Conditions: Market potential. taxation. Political factors: Political stability. infrastructure. .

The trends in FDI inflow to India since 1991 30000 27329 25000 24573 25609 20000 15725 15000 10000 5975 5000 165 0 393 654 1374 2141 2770 3682 3083 4222 2439 2908 3134 2634 3754 5772 US $ .


Regional disparities in FDI equity inflows Regions not indicated Patna Guwhati Kanpur Bhubaneshwar Bhopal Cochi Jaipur Panaji Chandigargh Kolkatta Hyderabad Chennai Ahemadabad Banglore New delhi Mumbai 0% 5% 10% 15% 20% 25% 30% 35% .

production technology.Advantages of FDI € FDI usually flows as a bundle of resources including. besides capital. organisational and managerial skills These skills tend to spill over to domestic enterprises in the host country FDI contributes more to the growth of the economy than that of the domestic investments € € .

Disadvantages of FDI € Loss of ownership rights to a foreign company makes it a cautious decision The increased liquidity and the consequent inflation is due to the excessive FDI inflow It is being blamed for ousting the domestic inflows It is also claimed to have lowered few regulatory standards in terms of investment patterns € € € .

€ The effects of globalization on Indian industry through FDI has proved to be positive as well as negative The government of India must try to make economic policies with regard to Indian Industries globalization that are beneficial and not harmful € .

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