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FOREIGN DIRECT INVESTMENT (FDI)

INTRODUCTION
FDI is one of the sources of foreign developing countries seen as a means domestic investment higher level of development . most important investment in like India . It is to supplement for achieving a growth and

MEANING
FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly

Classification of FDI inflow from investors point of view


Market seeking : The investors are attached by the size of the local market , which depends on the income of the country and its growth rate. Lower cost : Investors are most costconscious . They are influenced by infrastructure facilities and labour costs. Location and other factors : Technology status of a country , brand name , goodwill enjoyed by the local firms , favorable location , openness of the economy , policies of the government and intellectual property protection granted by the government are some of the factors that attract investors to undertake investments .

WHAT F.D.I REQUIRS ?


Important factors which foreign investors take into consideration when entering a country are: Reliable access to economic information. The level of corruption. Stability of political and business environment . Ability to meet and comply with internationality acceptable standards and norms . Character of local market (size , growth , potential) or the distance and the access to neighboring markets. The existence of good and quality infrastructure.

F.D.I Permitted in the following forms of investments.


Through financial collaborations. Through joint ventures and technical collaboration. Through capital markets via euro issues. Through private placements or preferential allotment.

FDI is not permitted in the following industrial sectors

Areas and ammunition . Atomic energy . Railway transport. Coal and Lignite. Mining of iron , manganese , chrome , gypsum , gold , diamonds , copper , and zinc .

APPROVAL OF FDIs
FDI in India are approved through two routes: Automatic Approval by RBI. The FIPB Route

AUTOMATIC APPROVAL OF RBI


The RBI accords approval within two weeks to all proposals involving: Foreign equity up to 50% in 3 categories relating to mining activities(list 2); Foreign equity up to 51% in 48 specified industries(list 3) ; Foreign equity up to 74% in 9 categories(list 4); and Where list 4 includes items also listed in list 3, 74% participation shall be allowed.

The FIPB Route


The FIPB was constituted to promote foreign direct investment in India. FIPB stands for Foreign Investment Promotion Board which approve all other cases where the parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all types of proposals and rejection are few.

Factors that Attracts FDIs in India


I.

II.

III. IV.

V.

India has a well developed network and financial institutions and an organized capital market open to foreign institutional investors that attracts them to undertake investments. Indian skills and competence is used as a base for carrying out production activities and export to neighbor countries. For the last few years there has been political stability in the country. India enjoy good reputation among other countries as a honoring of its commitments about repayment obligations , remittance of dividends etc India has vast potential of unskilled labor available at cheap rates as compared to other countries, and vast natural resources that attract foreign investors.

Factors that Discourage FDIs


High rates of taxation Lack of infrastructure facilities Favoritisms in the selection of investment Complicated legal framework of rules, regulations, procedures for foreign direct investment into India. Lack of transparency.

FDI investments allowed in the following 19 NBFC activities shall be as per levels indicated below:

Merchant banking Underwriting Portfolio Management Services Investment Advisory Services Financial Consultancy Stock Broking Asset Management Venture Capital Custodial Services Factoring

Credit Reference Agencies Credit rating Agencies Leasing & Finance Housing Finance Foreign Exchange Brokering Credit card business Money changing Business Micro Credit Rural Credit

100% FDI Allowed in Following sectors.


Hotel & Tourism Power Sector Drugs and Pharmaceuticals Roads, Highways, Ports and Harbors Pollution Control and Management Call centers Business Process Outsourcing Manufacturing Industries Designated as small scale Industries.

51% FDI allowed in following sectors .

Trading .

49% FDI allowed in following sectors .


Private sector Banking . Telecommunication .

FDI Inflows in 2005-06 (In US $ mn)

FDI Inflows in India vis--vis Developing Countries

FDI inflows into India from Japan

Total Foreign Investment Inflows in US$ Million

SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (Financial year-wise):


Ranks 1 2 3 4 5 6 7 8 9 9 Total Country MAURITIUS SINGAPORE U.S.A. U.K. NETHERLANDS CYPRUS JAPAN GERMANY U.A.E. FRANCE

Amount Rupees in crores (US$ in million) 2008-09 2009-10


(April-March) 50,794 (11,208) 15,727 (3,454) 8,002 (1,802) 3,840 (864) 3,922 (883) 5,983 (1,287) 1,889 (405) 2,750 (629) 1,133 (257) 2,098 (467) 122,919 (27,329) (April-March) 42,924 (8,913) 8,188 (1,707) 7,577 (1,584) 1,841 (38) 3,687 (769) 6,419 (1,340) 5,197 (1,080) 2,581 (539) 2,824 (587) 1,158 (242) 100,539 (20,921)

SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS:


Ranks Sector 1 2 3 SERVICES SECTOR (financial & non-financial) COMPUTER SOFTWARE & HARDWARE TELECOMMUNICATIONS (radio paging, cellular mobile, basic telephone services) HOUSING & REAL ESTATE CONSTRUCTION ACTIVITIES (including roads & highways) POWER AUTOMOBILE INDUSTRY 2008-09 (AprilMarch) 28,411 (6,116) 7,329 (1,677) 11,727 (2,558) 12,621 (2,801) 8,792 (2,028) 4,382 (985) 5,212 (1,152) 4,157 (961) 1,931 (412) 3,427 (749) 2009-10 (April-Dec. 09) 17,074 (3,547) 2,857 (595) 11,442 (2,359) 11,472 (2,383) 10,543 (2,218) 6,088 (1,258) 4,696 (976) 1,613 (336) 1,085 (219) 1,258 (264)

Amount Rupees in crores (US$ in million

4 5 6 7

8 9 10

METALLURGICAL INDUSTRIES PETROLEUM & NATURAL GAS CEHMICALS (other than fertilizers)

FDI EQUITY INFLOWS DURING FINANCIAL YEAR 2009-10:


Financial Year 2009-10 Amount of FDI inflows* ( April-March ) (In Rs. Crore) In US$ mn) 1 April 2009 11,708 2,339 2 May 2009 10,168 2,095 3 June 2009 12,335 2,582 4 July 2009 17,045 3,516 5 August 2009 15,796 3,268 6 September 2009 7,326 1,512 7 October 2009 10,895 2,332 8 November 2009 8,081 1,735 9 December 2009 7,185 1,542 2009-10 (Up to December 2009) # 100,539 20,921 2008-09 (Up to December 2008) 92,326 21,153 (+)09% (-)01% %age growth over last year

FDI EQUITY INFLOWS (WITH COMPANY-WISE DETAILS) AVAILABLE 2000-2009:


1 Cumulative amount of FDI inflows (from April 2000 to March 2009) Rs. 3,93,126 crore US$ 89,840 million

Amount of FDI inflows during 2009-10 (from April 2009 to December 2009)

Rs. 1,00,539 crore

US$ 20,921 million

Cumulative amount of FDI inflows (updated up to December 2009)

Rs. 4,93,665 crore

US$ 110,761 million

News Relating to FDI

Changes in FDI Norms can Dampen Foreign InvestmentsExperts-April 10,2010 Govt Rules out Change in FDI Norms for Banks-April 6 ,2010 India invites investment in food processing March 10 , 2010 Foreign funds sneak into property business-March 4,2010 Global Financial Crisis Keep Foreign investors Away from Realty, Construction Sectors-February 22, 2010 Govt Doubles Ceiling on Automatic Foreign Investment February 16, 2010 Foreign Investment in India-February 4, 2010 Finance Ministry Rejects Proposal to drop FDI Realty lock-inJanuary 19, 2010 FDI inflows likely to flat in 2009-10: Sharma-22 Mar 2010,

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