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What should India do to attract more Foreign Investment?
Presented by: Loveleen Kaur Reehal Manjeet Panghal Mayank Mittal Nidhi Bharti MBA(HR – 2 Sem)
Pizza vs Paratha: Influence of FDIs in India
Dial a number, order a pizza and you have it delivered to your door within minutes. Though not a traditional India cuisine, it has barged into our daily lives as a major churner. The Pizza has given the traditional Parantha a run for its money. Have we ever pondered on how this outsider made into our homes to be a part of our lives? How a nation driven by traditions has accepted this breakthrough? This is a resultant of the foreign companies testing Indian waters. The “Foreign Direct Investment” policy has opened the sluice gates for all the major players across the world to explore India. FDI (Foreign Direct Investment) is a corporate governance mechanism for a company on foreign soil, the resultant of which is a mutual benefit for the company and the economy of the country.
• • •
Foreign companies in India have opened a plethora of choices be it consumer goods, jobs, business opportunities etc. Indian Corporate and the Government(s) have benefited from the FDIs. India after independence in 1947 had adopted a socialistic approach. There were stringent license regulations and import duties/tariffs. The year 1991 saw the economic liberalization of India, the new policies included international trade and investment, Tax reforms, privatization and inflation control. The international trade and investment has led to the foreign direct investments in India. As a result of these policies the world was at the doorsteps of India, the total foreign investments grew from a paltry $132 million in 1991-92 to $5.3 billion in 1994-95, The FDIs raised from 1 percent of the countries gross fixed capital formation as in 1991 to 4 percent in 1993, and now FDI inflows stood at US$ 19.38 billion in April-November 2009. Thus all sectors are pounded with multiple companies; giving scope for more investments, saw the rise of many entrepreneurs, increased the quality of products and services rendered to the consumers. Thus The Pizza hut has made its way into our kitchen, The Samsung/LG/Philips have made their way into our living rooms, The Honda/Fiat/Chevrolet have made their way into our garages, Microsoft, Google and other IT giants have chosen our cities as their working hubs.
FOREIGN DIRECT INVESTMENT IN INDIA- AN OVERVIEW
• FDI is any form of investment that earns interest in an enterprise which function outside of the domestic territory of the investor. • It requires a business relationship between parent company and its foreign subsidiary. • The investor’s purpose being to have an effective voice in the management of the enterprise.
FDI has the potential of enhancing economic activity and employment in the country by complementing and supplementing domestic investment. Additional investments brought in through FDI, over and above investments possible with the available domestic resources, assist in providing additional employment opportunities. FDI also plays a vital role in: • Up gradation of technology • Enhancing Skills • Enhancing managerial capabilities
• Inward FDIs : Inward foreign investment is the investment of foreign capital that occurs in local resources. Different economic factors encouraging inward FDIs include interest loans, tax breaks, grants, subsidies, and the removal of restrictions and limitations. • Outward FDIs : In this case it is the local capital, which is being invested in some foreign resource, also referred to as “direct investment abroad. It is backed by the government against all types of associated risks and subject to tax incentives as well as disincentives of various forms. Risk coverage provided to the domestic industries and subsidies granted to the local firms stand in the way of outward FDIs.
• Vertical FDI : It takes place when a multinational corporation owns some shares of a foreign enterprise, which supplies input for it or uses the output produced by the MNC. • Horizontal FDI : It happens when a multinational company carries out a similar business operation in different nations. • Market-seeking FDIs : FDIs that are undertaken to strengthen the existing market structure or explore the opportunities of new markets. • Resource-seeking FDIs : FDIs that are aimed at factors of production which have more operational efficiency than those available in the home country of the investor.
FDI has boomed in post-reform India. Moreover, the composition and type of FDI has changed considerably since India has opened up to world markets. This has fuelled high expectations that FDI may serve as a catalyst to higher economic growth. Growth implications of FDI can be assessed in India by subjecting industry-specific FDI and output data to Granger causality tests within a panel co-integration framework. It turns out that the growth effects of FDI vary widely across sectors. FDI stocks and output are mutually reinforcing in the manufacturing sector.
According to global services location index by AT Kearney, India continues to be the best place to start a business.
The 2009 survey of the Japan Bank for International Cooperation conducted among Japanese investors continues to rank India as the second most promising country for overseas business operations, after China.
According to United Nations Conference on Trade and Development (UNCTAD), ‘World Investment Prospects Survey 2009-2011,’ India has been ranked at the third place in global foreign direct investments this year , following the economic meltdown, and will continue to remain among the top five attractive destinations for international investors during the next two years.
Union Commerce Minister Anand Sharma has disclosed that the flow of foreign direct investment to India during the month of July 2009 has been registered at $3.52 billion, which is 56.5% higher than the $2.25 billion, which was registered during the corresponding period last year. India attracted foreign direct investment (FDI) inflows of US$ 1.74 billion during November 2009, a 60 per cent increase over the US$ 1.08 billion achieved in same month last year. FDI equity inflows as a percentage of GDP has grown from 0.75 per cent in 2005-06 to nearly 2.49 per cent in 2008-09.
FDI EQUITY INFLOWS IN FINANCIAL YEAR 2009-10
FINACIAL YEAR 2009-10 AMOUNT OF FDI INFLOWS
(In Rs. Crore)
April May June 11708 10168 12335
(In US$ Million)
2339 2095 2582
September October November December 2009-10(upto dec 09) 2008-09(upto dec 08) % growth over last year
7326 10895 8081 7185 100539 92326 (+)09%
1512 2332 1735 1542 20921 21153 (-)01%
FDI INFLOWS YEARWISE
Amount Rs in crores FINANCIAL YEAR 2000-01 2001-02 FDI INFLOWS 4029 6130 (+)52 %AGE GROWTH OVER PREVIOUS YEAR
2004-05 2005-06 2006-07 2007-08 2008-09
6051 8961 22826 34835 35810
(+)40 (+)48 (+)146 (+)53 (+)01
COMULATIVE FDI EQUITY INFLOWS ( 1991-2009)
FROM 1991- 2009 AMOUNT OF FDI INFLOWS (In Rs. Crore) COMULATIVE AMOUNT OF FDI INFLOWS 554270 (In US$ Million) 127460
TOP INVESTING COUNTRIES IN INDIA O9-10
Amount Rs in crores RANKS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. COUNTRIES Mauritius Singapore U.S.A U.K Netherlands Cyprus Japan Germany U.A.E France INFLOWS 2009-10 (Upto December) 42924 8188 7577 1841 3687 6419 5197 2581 2824 1158 %AGE TO TOTAL INFLOWS 44 9 8 5 4 4 4 3 1 1
• Indian companies are increasingly buying up companies abroad as strategic acquisition, indicating the growing competitiveness of the Indian corporate sector. India retains its position as the second highest foreign employer in the UK, after the US, according to the 2009 UK inward FDI official data. This year, Indian inward investors created 4,149 new jobs, with 108 new projects, up 44 per cent from last year. India has been witnessing a surge in outward investment with the number of approved projects on the rise. During the quarter July-September 2009, 1,127 proposals amounting to US$ 4.8 billion were cleared for investments abroad in joint ventures (JVs) and wholly owned subsidiaries (WOSs).
• During the first half of 2009-10 (April-September 2009), 2,045 proposals amounting to US$ 7.5 billion were cleared for investments abroad in JVs and WOSs, the number of proposals recorded an increase of 2.3 per cent over the corresponding period of the previous year. • Actual outward FDI in JVs and WOSs during the quarter July-September 2009 stood at US$ 3.3 billion.
• Nine proposals for bringing in a total foreign investment of US$ 112.25 million were cleared in December 2009 by the government. Among those approved is a proposal by Japan's Mitsui and Company to bring in US$ 69.83 million to establish a fully-owned subsidiary in the warehousing sector and the setting up of a joint venture entity in the container freight stations segment. Earlier, seventeen proposals involving FDI of over US$ 944.78 million were approved by the Foreign Investment Promotion Board (FIPB) on November 20, 2009, according to an official statement. These majorly included: • Sistema Shyam Teleservices' proposal to issue shares worth over US$ 622.79 million to The Federal Agency for State Property Management for Russian Federation; Gucci's plans to pick-up 51 per cent stake in Luxury Goods Retail Ltd, under single brand retail activity; Proposal of British luxury apparel brand Burberry to set up a joint venture in India for single brand retailing. This involves an FDI inflow of US$ 3.47 million.
ENTRY OPTIONS FOR FOREIGN INVESTORS
As an incorporated entity by incorporating a company under the Companies Act, 1956 through Joint Ventures Wholly Owned Subsidiaries As an office of a foreign entity through Liaison Office / Representative Office Project Office Branch Office
• • • • •
FDI is permitted in the following forms of investments
• Through financial collaborations. • Through joint ventures and technical collaborations. • Through capital markets via Euro issues. • Through private placements or preferential • allotments.
• • • • • Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc. Retail Trading (except single brand product retailing) Lottery Business including Government /private lottery, online lotteries,etc. Gambling and Betting including casinos etc. Business of chit fund Nidhi company Trading in Transferable Development Rights (TDRs) Activities / sectors not opened to private sector investment.
• • • • •
ROUTES FOR FDI INFLOW
Automatic Route • FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional Office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares of foreign investors. • It encompasses all proposals where the proposed items of manufacturing items does not require an industrial license and is not reserved for small scale sector. Government Route • FDI in activities not covered under the automatic route require prior government approval. Approvals of all such proposals including composite proposals involving foreign investment/foreign technical collaboration is granted on the recommendations of Foreign Investment Promotion Board (FIPB). • Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance.
Other modes of Foreign Direct Investment
• Global Depository Receipts : A negotiable certificate held in the bank of one country representing a specific number of shares of a stock traded on exchange of an another country. • American Depository Receipts : A negotiable certificate issued by U.S Bank representing a specific number of shares of a stock traded on U.S stock exchange. • Foreign Currency Convertible Bonds : FCCB is debt which is issued by an Indian company in a foreign exchange outside the country. It is usually dollar denominated. It is generally convertible at the lapse of a time period into common equity shares or sometime ADS or GDR.
• Indian Companies allowed to raise equity capital in the international market through the issue of GDRs/ ADRs/FCCBs. • No ceiling on investment • No end-use restrictions on GDR/ ADR/ FCCB issue proceeds – Except • Investment in real estate • Stock markets.
INVESTMENT PROMOTION AND FACILITATION IN INDIA
1. FOREIGN INVESTMENT PROMOTION BOARD • The government of India has set up a special Board which is the only agency dealing with matters requiring govt approval relating to FDI as well as promoting investment into the country. • It is chaired by Secretary Industry (Department of Industrial Policy & Promotion).
• The recommendations of FIPB in respect of the project-proposals each involving a total investment of Rs.600 crores or less would be considered and approved by the Industry Minister. • The recommendations in respect of the projects each with a total investment of above Rs 600 crores would be submitted to the Cabinet Committee on Foreign Investment (CCFI) for decision.
2. FOREIGN INVESTMENT PROMOTION COUNCIL :
The Government has constituted a Foreign Investment Promotion Council (FIPC) under the chairmanship of Chairman ICICI, to undertake vigorous investment promotion and marketing activities. FIPC undertakes the investment promotional activity which entails making extensive contact with potential investors, lobbying and interacting with individual companies etc. The Council with distinguished and well known experts as the members will capitalise, manage and coordinate investment promotion and marketing efforts.
3. FOREIGN INVESTMENT IMPLEMENTATION AUTHORITY :
Government of India has set up the Foreign Investment Implementation Authority (FIIA) to facilitate quick translation of Foreign Direct Investment (FDI) approvals into implementation, to provide a pro-active one stop after care service to foreign investors by helping them obtain necessary approvals, sort out operational problems and meet with various Government agencies to find solution to their problems.
4. INVESTMENT COMMISION
The Investment commission of India is a three-member commission set up in the Ministry Of Finance in December 2004 by the govt of India. Mr. Ratan Tata is chairman. This commission advises the govt of India on changes in policies and procedures, recommends projects and proposals to
SPECIAL INVESTMENT AVENUES
• Export Oriented Units (EOUs) 100% foreign equity even if it is manufacturing an item reserved for small sector. • Special Economic Zones (SEZs) No cap on foreign investment for manufacturing items of SSI Exemption for industrial licensing, excise duty.
FDI Vs FII
• A foreign institutional investor means an institution established or incorporated in foreign country that proposes to make investments in the country in securities. • FDI flows into the primary market whereas FII flows into the secondary market, that is, into the stock market.
• FDI is perceived to be more beneficial because it increases production, brings in more and better products and services besides increasing the employment opportunities and revenue for the Government by way of taxes. FII, on the other hand, is perceived to be inferior to FDI because it only widens and deepens the stock exchanges and provides a better price discovery process for the scrip's.
• Net outflow of FFIs in February, 2010 stood at Rs 7216.67 Cr.
• • • • • • • • • Growth Prospects Of An Economy Population Of A Country Size Of The Market Political Stability Legal And Regulations Access To Basic Inputs Infrastructural Facilities Status Of Human Resource Inexpensive Labor Force
CALCULATION OF FOREIGN INVESTMENT
Guidelines for calculation of direct and indirect foreign investment
• Investment in Indian companies can be made both by nonresident as well as resident Indian entities.
• Any non-resident investment in an Indian company is direct foreign investment. • Investment by resident Indian entities could again comprise of both resident and non-resident investment.
Guidelines for calculation of direct and indirect foreign investment contd..
Counting the Direct Foreign Investment: All investment directly by a non-resident entity into the Indian company would be counted towards foreign investment.
Counting of indirect foreign Investment: (a) The foreign investment through the investing Indian company would not be considered for calculation of the indirect foreign investment in case of Indian companies which are ‘owned and controlled’ by resident Indian citizens and/or Indian Companies which are owned and controlled by resident Indian citizens . (b) For cases where condition (a) above is not satisfied or if the investing company is owned or controlled by ‘non resident entities’, the entire investment by the investing company into the subject Indian Company would be considered as indirect foreign investment.
Parameters for calculation of indirect foreign investment
Liberalization of Industrial Policy
Evolution of FDI Policy
More sectors opened ; Equity caps raised in many other sectors Procedures simplified Up to 100% under Automatic Route in all sectors except a small negative list Up to 74/51/50% in 112 sectors under the Automatic Route 100% in some sectors FDI up to 51% allowed under the Automatic route in 35 Priority sectors Allowed selectively up to 40% FDI Policy Liberalization
Current FDI policy of India
INTENT AND OBJECTIVE
• It is the policy of the Government of India to attract and promote productive FDI from non-residents in activities which significantly contribute to industrialization and socio-economic development. • FDI is encouraged in enterprises to significantly expand employment and livelihood opportunities, enhance economic value of products, promote welfare of consumers, increase exports and/or transfer technologies in all economic activities. • FDI supplements the domestic capital and technology.
• • • • • • • • Sectors prohibited for FDI i. Retail Trading (except single brand product retailing) ii. Atomic Energy iii. Lottery Business iv. Gambling and Betting v. Business of chit fund vi. Trading in Transferable Development Rights (TDRs). vii. Activity/sector not opened to private sector investment
• Agriculture & Animal Husbandry 100% FDI is allowed under automatic route in Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aquaculture and Cultivation of Vegetables & Mushrooms under controlled conditions and services related to agro and allied sectors. Besides the above, FDI is not allowed in any other agricultural sector/activity. • Plantation - including tea plantation. 100% FDI is allowed in the Tea sector including tea plantations under Government route subject to the conditions of : (i) Compulsory divestment of 26% equity of the company in favour of an Indian partner/Indian public within a period of 5 years (ii) Prior approval of the State Governement concerned in case of any future land use change. Besides the above, FDI is not allowed in any other plantation sector/activity.
• Mining covering exploration and mining of diamonds & precious stones; gold, silver and minerals. 100% Automatic Subject to Mines & Minerals (Development & Regulation) Act, 1957 Coal & Lignite mining for captive consumption by power projects, and iron & steel, cement production and other eligible activities permitted under the Coal Mines (Nationalisation) Act, 1973. 100% Automatic Subject to provisions of Coal Mines (Nationalization) Act, 1973 Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities . 100% FIPB Subject to sectoral regulations and the Mines and Minerals (Development & Regulation) Act, 1957
• Alcohol- Distillation & Brewing 100% Automatic Subject to license by appropriate authority Cigars & Cigarettes- Manufacture 100% FIPB Subject to industrial license under the Industries (Development & Regulation) Act, 1951 Coffee& Rubber processing & warehousing 100% Automatic Defence production 26% FIPB Subject to licensing under Industries (Development & Regulation) Act, 1951 and guidelines on FDI in production of arms & ammunition.
• Hazardous chemicals, viz., hydrocyanic acid and its derivatives; phosgene and its derivatives; and isocyanates and di isocyantes of hydrocarbon. 100%
Automatic Subject to industrial license under the Industries (Development & Regulation) Act, 1951 and other sectoral regulations.
• Industrial explosives - Manufacture
100% Automatic Subject to industrial license under Industries (Development & Regulation) Act, 1951 and regulations under Explosives Act, 1898
• Drugs & Pharmaceuticals including those involving use of recombinant DNA technology
Major international players – Siemens, Texas Instruments, Matsushita, Alcatel, LG, Samsung, Sharp and Lenovo. • Nokia, Sony Ericsson (OEM by Foxconn and Flextronics), LG Electronics, Samsung Mobile and Motorola have set up manufacturing facilities for mobile handsets in India. • 100% FDI under automatic route is allowed excepting for aerospace and defence equipment manufacturers which require an industrial license. • New SEZ Act with duty-free imports and income tax concessions. • International contract manufacturers like Flextronics (Chennai) and Jabil Circuit (Pune) have set up base in India.
• 100% FDI through the automatic route. • Major domestic players – Tata Motors, Hero Honda, Bajaj Auto, Ashok Leyland and TVS. • Major international private players – Suzuki, Hyundai, Ford, General Motors, Toyota and Honda • Vehicle production expected to increase from 8.6M in 2004-05 to 15M by 2010-11. • Hyundai and Suzuki are considering India as a global hub for the manufacture of small cars.
Expected to grow to over 3% by 2015-16. • International players – Delphi, Visteon, Bosch and Meritor have set up operations in India. • General Motors, Ford, Toyota etc. have set up IPOs in India to feed their global operations. • GM, Daimley Chrysler, Bosch, Suzuki, Johnson Controls etc. have set up R&D centres in India. • 100% FDI through the automatic route.
Power including – generation (except Atomic energy); – transmission, distribution and – Power Trading. – 100% – Automatic
• FDI upto 100% is permitted under automatic route for: • Generation and transmission of electric energy produced in-hydro electric, coal/lignite based thermal, oil based thermal and gas based thermal power plants. • Non-Conventional Energy Generation and Distribution. • Distribution of electric energy to households, industrial, commercial and other users. • This does not include generation, transmission and distribution of electricity produced in atomic power plant/atomic energy since private investment in this sector/activity is prohibited and is reserved for public sector.
• India's power sector is set to emerge as a key destination for private equity (PE) players with close to US$ 1.64 billion worth of infrastructure funds set to be launched. • Voith, the German engineering corporation, is shortly to inaugurate its Vadodara plant that will make runners for hydro power plants • Toshiba (in a joint venture with JSW Group) is drawing up plans for commencing manufacturing operations in the country. -- India Brand Equity Foundation
• Central bank • 1)bank of government. fiscal policy • 2)bank of banks. monitory policy.
• • • • Govt. needs FDI’s? Govt. needs FII’s? FII :-they does not provide stability to market. FDI:-e.g. in banks to control lending rate, fluctuations of economy. • E.g. Defense :-don’t want to give participation to any other countries for strategic policy of country. E.g. 3G.
Banking –Private sector
• FDI limit in Private Sector Banks is 74 % including investment by FIIs. This will include FDI investment under the Portfolio Investment Scheme (PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003 by OCBs, and continue to include IPOs, Private placements, GDR/ADRs and acquisition of shares from existing shareholders. FDI as above up to 49% is under the automatic route and beyond that up to 74% on the Government route.
• A foreign bank may operate in India through only one of the three channels viz., (i) branches (ii) a wholly-owned subsidiary and (iii) a subsidiary with aggregate foreign investment up to a maximum of 74 per cent in a private bank. e.g. RBS, Standard Chartered, Deutsche Bank, CITI Bank, HSBC.
Banking- Public Sector
• FDI and Portfolio Investment in nationalized Banks are subject to overall statutory limit of 20% as per section 3(2D) of the Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. The same ceiling is also applicable to the State Bank of India and its associate Banks
Advertising and Films
• 100% FDI under the automatic route is allowed in Advertising sector. • 100% FDI under the automatic route is allowed in Film Industry . e.g. Ogilvy & Mather Advertising MNIK-Warner Brothers, Kambakht Ishq-21st century.
Civil Aviation Sector
• The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled domestic passenger airlines, Helicopter services / Seaplane services, Ground Handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions . (i) Airports: (a) Greenfield projects- FDI unto 100% is allowed under the automatic route. (b) Existing projects- FDI unto 100% is allowed under Government route for FDI beyond 74%.
• E.g. Air-Asia, Malasyia Airlines-Banglore, KLM Bombardier –Mumbai.
• 29.1Terrestrial Broadcasting FM (FM Radio): Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 20% equity for FM Radio’s Broadcasting Services with prior approval of the Government. • E.g. Radio Mirchi:-Star Group (U.S.A.)
• Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 49% for Cable Networks under Government route subject to Cable Television Network Rules, 1994.
• Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 49% for Direct to Home under Government route. Within the limit of 49% FDI will not exceed 20%. • E.g. TATA SKY:-SKY network U.S.A.(20+9.8) • Star world, Fox History, UTV Bloomberg.
Setting up hardware facilities such as up-linking, HUB
• FDI (including investment by FII) up to 49% would be permitted under the Government route for setting up Up-linking HUB/ Teleports; • b) FDI up to 100% would be allowed under the Government route for Up linking a Non-News & Current Affairs TV Channel; • c) FDI (including investment by FII) up to 26% would be permitted under the Government route for Up-linking a News & Current Affairs TV Channel subject to the condition that the portfolio investment in the form of FII/ NRI deposits shall not be “persons acting in concert” with FDI investors, as defined in the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997. • E.g. Hughes, AT&T, ESSAR, CISCO.
• 100% FDI under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing& Analysis services. • E.g. Standard & Poor company: Crisil Goldman & Sachs
• Futures trading in commodities are regulated under the Forward Contracts (Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures market. With a view to infuse globally acceptable best practices, modern management skills and latest technology, it was decided to allow foreign investment in Commodity Exchanges. • Mutual funds :-SBI Life-BNP Paribus
Construction and maintenance
• 100% FDI is allowed in Construction and maintenance of-roads, rail-beds, bridges, tunnels, pipelines, ropeways, ports, harbours and runways, waterways & water reservoirs, hydroelectric projects, power plants, industrial plant. • 100 % FDI is permitted in construction and maintenance of Roads and highways offered on BOT basis including collection of toll. • E.g. Hyundai, Mitsubishi, Essar, JCB.
• 100% FDI is allowed under the Government route. • 34.2 This will be subject to existing Law i.e Indian Post Office Act 1998 and exclusion of activity relating to the distribution of letters. • E.g. Fed-Ex, DTH, DTDC.
Health and Medical Services
• 100% FDI is allowed under the automatic route in Health and Medical Services . • E.g. Max Life hospitals.
Hotels and Tourism related Industry
• 100% Foreign Investment is allowed under automatic route. • The terms hotel includes restaurants, beach resorts and other tourism complexes providing accommodation and /or catering and food facilities to tourists . • The term tourism related industry includes: • (i) Travel agencies, tour operating agencies and tourist transport operating agencies • (ii) Units providing facilities for cultural, adventure and wildlife experience to tourists • (iii)Surface, air and water transport facilities for tourists • (iv) Convention/seminar units and organizations.
E.g. • La Meridian, Grand Hyatt, Radisson • Tourism :-Thomas Cook
• FDI up to 26% in the Insurance sector, as prescribed in the Insurance Act, 1999, is allowed under the automatic route. • This will be subject to the condition that Companies bringing in FDI shall obtain necessary license from the Insurance Regulatory & Development Authority for undertaking insurance activities .
• • • • • • • • • • • • • • • • • • • • • • •
Bajaj Allianz Life Insurance Company Limited HDFC Standard life Insurance Co. Ltd ICICI Prudential Life Insurance Co. Ltd. ING Vysya Life Insurance Company Ltd. Max New York Life Insurance Co. Ltd Met Life India Insurance Company Ltd. Kotak Mahindra Old Mutual Life Insurance Limited Tata AIG Life Insurance Company Limited Reliance Life Insurance Company Limited. Aviva Life Insurance Co. India Pvt. Ltd. Bharti AXA Life Insurance Future Generali Life Insurance IDBI Fortis Life Insurance Canara HSBC Oriental Bank of Commerce Life Insurance Religare Life Insurance DLF Pramerica Life Insurance Star Union Dai-ichi Life Insurance Apollo DKV Insurance HDFC Ergo General Insurance Company ICICI Lombard General Insurance IFFCO Tokio General Insurance Reliance General Insurance Tata AIG General Insurance
Petroleum & Natural Gas Sector
• FDI up to 100% under the automatic route is permitted in exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products, actual trading and marketing of petroleum products, petroleum product pipelines, Natural Gas/LNG pipelines, market study and formulation and Petroleum refining in the private sector • FDI up to 49% is permitted under the Government route in petroleum refining by the Public Sector Undertakings (PSU). This should not involve any divestment or dilution of domestic equity in the existing PSUs.
• Publishing of Newspaper and periodicals dealing with news and current affairs: Foreign investment, including FDI and investment by NRIs/PIOs/FII, up to 26%, is permitted under the Government route. • Publishing/printing of Scientific and Technical Magazines/specialty journals/ periodicals: 100% FDI is permitted under the Government route. • E.g. Times Group:- Benetton & Colman. Mint- Wall street Journal. Forbes –India.
Research and Development Services
• Research and Development Services excluding basic Research and setting of R&D/ academic institutions which would award degrees/diplomas/certificates: 100% FDI is allowed under the automatic route. • e.g. Hewlett-packard, IBM India ,Oracle , Cognizant technologies, Nokia, Intel, Microsoft, Lenovo, Cisco.
• Foreign Direct Investment limit in telecom services is 74 per cent subject to the following conditions:• This is applicable in case of Basic, Cellular, Unified Access Services, National/ International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added Services . In any case, the `Indian’ shareholding will not be less than 26 per cent. • FDI up to 49 per cent is on the automatic route and beyond that on the Government route. • E.g. TATA-DOCOMO, Hutchison-Essar, Bharti Tele-Ventures, Spice Communications, Uninor.
ADVANTAGES OF FDI
Raising the Level of Investment
Fills gap between desired investment and locally mobilized savings. Provides access to hard currency needed to purchase investment goods.
Upgradation of Technology
Provide investment goods that embody advanced technology. Spill over and actual transfers.
ADVANTAGES OF FDI
Contributes to human capital formation.
Improvement in Export Competitiveness
Provide International linkages of MNCs. Better access to foreign markets.
ADVANTAGES OF FDI
Inflow of foreign currency
Revenue to Government
Profits generated by FDI contribute to corporate tax revenues.
Helps in Financial Crisis.
DISADVANTAGES OF FDI
Foreign direct investment may entail high travel and communications expenses. The differences of language and culture could also pose problems in case of foreign direct investment. Influence over the political decisions of developing countries by foreign firms because of their large size and power and may even jeopardize the National Sovereignty and control over economic policies.
DISADVANTAGES OF FDI
Causes risk to the Defense of a country. Could increase income inequalities in society. Stimulate inappropriate consumption pattern through excessive advertising and monopolistic/oligopolistic market power.
Contribution to public revenue through corporate taxes is comparatively less.
DETERRENTS TO FDI FLOWS IN INDIA
Bureaucratic Controls and Procedures
Outdated laws, government monopolies and inefficient implementation. Division of policy implementation between Central and State governments.
Failure of power reforms. Inadequate quality of transport services.
DETERRENTS TO FDI FLOWS IN INDIA
Delay in power connections, land acquisitions, building plan approval etc.
Taxes levied on transportation of goods from state to state. Differential sales and excise taxes.
MEASURES TO ATTRACT FDI
Attitude towards FDI
Clear and unambiguous message. Well designed publicity campaign.
MEASURES TO ATTRACT FDI
More and better information about procedures, regulations etc. Success stories. The recent in spurt in FDI inflows. Liberal and transparent FDI regimes. policies,
Foreign Investment Law
Enactment of investment promotion law.
MEASURES TO ATTRACT FDI
Investment Marketing Fund be created.
FIIA be empowered to fix time frame on completion of all documentation requirements. Enlarge the no. of activities under automatic route.
MEASURES TO ATTRACT FDI
Invite participation of industrial associations.
Develop strategic overseas presence bilateral/multilateral arrangements. through
FDI : OUTLOOK 2010
Steps to be taken to attract FDI towards Innovation, Research and Green technologies. The new simplified version of foreign direct investment (FDI) policy to be out by March 31, 2010. The Foreign Investment Promotion Board (FIPB) approved 12 new foreign direct investment (FDI) proposals worth over Rs. 1,045.61 crore.
FDI : OUTLOOK 2010
No FDI attraction in Tobacco. To increase the FDI, the Cabinet Committee on Economic Affairs approved a proposal to review the policy of approvals for foreign investment. India and the UK to increase FDI flows by increasing bilateral co-operation in the areas of manufacturing, innovation and green technologies.
Most Attractive FDI Destinations
Country China United States India Brazil Germany Poland Australia 2010 Rank 1 2 3 4 5 6 7 2007 Rank 1 3 2 6 10 22 11 Change 0 +1 -1 +2 +5 +16 +4
Canada United Kingdom
• Bhasin, Niti; “Foreign Investment in India”; New Century Publication, July, 2008. • World Investment Report, 2009; United Nations Conference on Trade and Development. • Website of Ministry of Commerce and Industry, http://dipp.nic.in/. • http://ibef.org/download/fdi_26October.htm • www.medianama.com • Economic Times • The Hindu