Foreign Direct Investment

PRESENTED BY :- ANUVI SHARMA - MOHIT KUMAR - ANUBALA

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An Overview
What is FDI ???? Why we need FDI ???? What is the process of the Inflow of FDI ???? What are the benefits and costs????

Defination of FDI
Foreign direct investment (FDI) occurs when an investor based in one country (the home country) acquires an asset in another country ( the host country) with the intent to

manage the asset.

Types of FDI
FDI Types Purchase of existing assets Quick entry, local market know-how, local financing may be possible, eliminate competitor, buying problems New investment No local entity exists or is available for sale, local financial incentives may encourage, no inherited problems, long lead time to generation of sales or other desired outcome Participation in an international joint-venture Shared ownership with local and/or other non-local partner 4

Which factors encourages FDI?

Financial incentives (Funds from local Government)

Fiscal incentives (Exemption from import duties)

Indirect incentives (Provides land and infrastructures at less commercial prices)

Which factors encourages FDI?

Political stability Market potential & accessibility Large economy Market size External debt discourages FDI
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Dont Be Confused Between FDI & FII

FII - is Foreign Institutional Investors, i.e, foreign
Investment Bankers like Goldman sachs, Merrill lynch, Lehman bros etc...investing in indian markets......in other words buying indian stocks.....FII's generally buy in large volumes which has an impact on the stock markets...

FDI - is Foreign Direct Investments i.e. a

foreign company having a stake in a public sector undertaking in a country for a long period and that company is called Multinational Enterprise.
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The Direction of FDI

Historically, most FDI has been directed at the developed nations of the world as firms based in advanced countries invested in other markets
The US has been the favorite target for FDI inflows

While developed nations still account for the largest share of FDI inflows, FDI into developing nations has increased
Most recent inflows into developing nations have been targeted at the emerging economies of South, East, and Southeast Asia

Modes of FDI
1) By Direction * Inward *Outward 2) By Target * Mergers and Acquisitions * Horizontal FDI * Vertical FDI (a) Backward Vertical FDI (b) Forward Vertical FDI 3 )By Motive * Resource-Seeking * Market-Seeking * Efficiency-Seeking * Strategic-Asset-Seeking
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BY TARGET
Mergers and Acquisitions Transfers of existing assets from local firms to foreign firms takes place; Horizontal FDI Investment in the same industry abroad as a firm operates in at home. Vertical FDI *Backward Vertical FDI Where an industry abroad provides inputs for a firm's domestic production process. *Forward Vertical FDI Where an industry abroad sells the outputs of a firm's domestic production.
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BY MOTIVE
Resource-Seeking This typifies FDI into developing countries, for example seeking natural resources in the Middle East and Africa, or cheap labor in Southeast Asia and Eastern Europe. Market-Seeking Investments which aim at either penetrating new markets or maintaining existing ones.. Efficiency-Seeking It is suggested that this type of FDI comes with the expectation that it further increases the profitability of the firm. Typically, this type of FDI is mostly widely practiced between developed economies; especially those within closely integrated markets (e.g. the EU).. Strategic-Asset-Seeking A tactical investment to prevent the loss of resource to a competitor. Easily compared to that of the oil producers, whom may not need the oil at present, but look to prevent their competitors from having 11 it.

INDIA AN IDEAL INVESTMENT DESTINATION

Worlds largest democracy Second largest emerging market (US$ 2.4 trillion) Liberal Foreign Investment Regime Skilled and competitive labour force

Amongst the highest rates of return on investment

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Large domestic market

FDI Approval Procedure

Automatic Route in most Sector Government Route for few sectors

RBI

FIPB

No permission required, only to notify RBI within 30 days of issue of shares to foreign investors

Approval is granted generally in 30 days

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FDI Inflows.Robust Growth

9000 8000 7000 6000 5035

US $ m

(Only Equity) 7722

7404

6130

6051

5000 4322 4000 3000 2000 1000 0

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

4029

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2006 Apr - Nov

2500

FDI Inflows- Sector -wise

2000

Electrical equipment including software moves to over all 2nd position in Nov 2006. Services sector shows spurt in growth and the top sector attracting FDI moving up from the third position.
1500

US $ m

Spurt in FDI in Real Estate causes the construction sector to the third position in Nov 2006.

1000

500

0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Transportation Fuels (Power & Oil Refinery) 2006 April Nov

Electrical Equipment (including Software) Chemicals (other than Fert.) Construction Activities

Telecommunications Services Sector

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FDI Policy . Prohibited activities

Retail except single brand retailing allowed upto 51% with FIPB approval Atomic energy Lottery business Betting and Gambling

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FDI Policy for Industry SectorFully permitted

Manufacturing 100% FDI permitted in all activities under automatic route except: Cigar and cigarettes of tobacco - FIPB Products reserved for Small Scale Sector
FDI less than 24% under automatic route FDI beyond 24% - FIPB subject to export obligation

Defence products
FDI upto 26% - FIPB subject to licensing of Arms and Ammunitions
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FDI Policy for Industry Sector. Fully permitted

Mining
Coal FDI upto 100% as per Coal Mines (Nationalization) Act 1977 Diamond, Gold, Silver , Minerals upto 100% under automatic route as MMRD Act Atomic minerals upto 74% in JV with PSUs FIPB

Electricity
FDI upto 100% under automatic route in Generation, Transmission, Distribution and Power Trading as per Electricity Act 2003

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FDI Policy for Service Sector. Largely permitted

Upto 26%
FM Broadcasting (20%) - FIPB Uplinking News and CATV Channel - FIPB Print Media News Papers & Periodicals FIPB Insurance Automatic Broadcasting - Cable Network, DTH, Setting up hardware - FIPB Stock Exchanges - FIPB Air Transport Services Automatic

Upto 49%

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FDI Policy for Service Sector. Largely permitted

Upto 74%
Telecommunication
49%)

- FIPB (Beyond - Automatic

Private sector banks

Upto 100%

Development of existing airports - FIPB (Beyond

74%)

Publishing scientific magazines Courier services

- FIPB - FIPB

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Political Ideology & FDI

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Advantages of FDI
Infrastructure and technology transfer
Increased Productive efficiency due to competition from multinational subsidiaries
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Advantages of FDI
Faster growth of output and employment Consumer Benefits
Price Quality Varieties
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Advantages of FDI
Increase in Exports Increase in savings and Investment

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Costs of FDI
Detriment of the growth of domestic producer and the national economy

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Costs of FDI
Enviroment and natural resource costs
Abuse of local culture and traditions Ex
FDI Tourism Abuse
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Costs of FDI
Facilitate hegemony by the dominant US and the western cultures.

Print

TV

Entertainments

Political Influence (News)

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