FOREIGN

DIRECT
INvESTMEN
1
T
 Presented By
Pooja Behl 111

Prajakta W 113

Pranay Jain 115

Prapti Gupta 117

Pratik Bisht 119

Pratik Parekh 121

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 Presentatation Structure
Introduction to FDI Objectives and need of FDI

Determinant s of FDI FDI in India

FDI Policy 2010 Dimensions of FDI in India

Impact of FDI Future prospects in FDI

Related News Articles Bibliography

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 INTRODUCTION
 FDI refers to capital inflows from abroad that invest in the
production capacity of the economy

 FDI occurs when an investor based in one country (the home

country) acquires an asset in another country ( the host country).

 It is the sum of equity capital, reinvestment of earnings, long

and short-term capital.

 FDI is viewed as a major stimulus to economic growth in

developing countries. Its ability to deal with two major obstacles,
namely, shortages of financial resources and technology and
skills.

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 OBJECTIVES OF FDI
 Expansion Strategy : companies start investing because they
want to make their product world available.

 New Source of demand : In many situations growth is

restricted in the home country because of intense competition
or due to unfavorable market conditions.

 Low cost production : In many countries the cost of production

is low because of raw materials, availability of man power etc.

 Economies of scale : if a large scale of a production is done

than the ratio of wastage comes down and the cost reduces.
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 NEED FOR FDI
 FDI is a source of economic development,
modernization, and employment generation

 FDI facilitates globalization of economies.

 FDI investment flows provided savings without adding

to the country's external debt.

 FDI also facilitates international trade and transfer of

knowledge, skills and technology.

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 Determinants of FDI
 Size of market : large, medium, small

 Openness : economy is open or close

 Labour cost and productivity: high or low

 Availability of natural resources

 Government policies : supportive or not

 Infrastructure: have or not.

7  Privatization
 ADVANTAGES OF FDI

 FDI encourages domestic investment by creating allied

industries

 Increased competition makes markets more efficient

 Explores the untapped market

 Employment generation

 Technology advancement

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 DISADVANTAGES OF FDI
 Mandatory regulations imposed by world organizations

 Lack of transparency

 Profits being remitted to parent company

 Competition to the domestic industries

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 FDI in India
In India, Foreign Direct Investment Policy allows for investment only in
case of the following form of investments:

 Through financial alliance

 Through joint schemes and technical alliance

 Through capital markets, via Euro issues

 Through private placements or preferential allotments

Foreign Direct Investment in India is not allowed under the following

industrial sectors such as arms and ammunition, atomic energy, rail
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transport etc.
 FDI POLICY 2010

 According to the current policy FDI can come into India in two
ways. Firstly FDI up to 100% is allowed under the automatic
route in all activities/sectors except a small list that require
approval of the Government.

 All proposals for foreign investment requiring government

approval are considered by the Foreign Investment Promotion
Board (FIPB). The FIPB also grants composite approvals
involving foreign investment/foreign technical collaboration.

 It states that if the Indian company in which there is foreign

investment, is owned or controlled by non residents to the extent
of 50% or more, it will be considered as foreign investment. Any
investment by such a company in another Indian company will
be considered as foreign investment.
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 FDI In India Across Different Sectors
Hotel & Tourism-

100 per cent FDI is permitted for this sector through the automatic route.

Trading-

For trading companies 100 per cent FDI is allowed for

 Exports
 Bulk Imports
 Cash and Carry wholesale trading.

Power-

For business activities in power sector like electricity generation, transmission and distribution
other than atomic plants the FDI allowed is up to 100 per cent.
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Telecommunication-

For basic, cellular, value added services and mobile personal communications by
satellite, FDI is 49 per cent. For ISPs with gateways, radio-paging and end to end
bandwidth, FDI is allowed up to 74 per cent. But any FDI above 49 per cent
would require government approval.

Drugs & Pharmaceuticals-

For the production of drugs and pharmaceutical a FDI of 100 per cent is allowed,
subject to the fact that the venture does not attract compulsory licensing, does
not involve use of recombinant DNA technology.

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 Contd......
Private Banking-

FDI of 49 per cent is allowed in the Banking sector through the automatic route provided the
investment adheres to guidelines issued by RBI.

Insurance Sector-

For the Insurance sector FDI allowed is 26 per cent through the automatic route on condition
of getting license from Insurance Regulatory and Development Authority (IRDA).

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Up to 100 per cent equity is allowed in the following sectors
34 High Priority Industry Groups

Export Trading Companies

Hotels and Tourism-related Projects
Hospitals, Diagnostic Centres
Shipping
Deep Sea Fishing
Oil Exploration
Power
Housing and Real Estate Development
Highways, Bridges and Ports
Sick Industrial Units
Industries Requiring Compulsory Licensing
Industries Reserved for Small Scale Sector
Etc.

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 Whereas......
Foreign Direct Investment in India is not allowed under the following industrial
sectors:

 Arms and ammunition

 Atomic Energy

 Coal and lignite

 Rail Transport

 Mining of metals like iron, manganese, chrome, gypsum, sulphur, gold,

diamonds, copper, zinc.

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 Dimensions of FDI In
India

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 TOP 10 COUNTRIES INVESTING IN
INDIA

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 SECTORS ATTRACTING HIGHEST FDI
EQUITY INFLOWS

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 STATES ATTRACTING HIGHEST FDI IN INDIA FROM
APRIL 2000 TO NOV 2009

Others
28%
Maharashtra, Maharashtra
Daman 35.84% Delhi UP and Haryana
Karnataka
Gujarat
Tamil Nadu Tamil Nadu
5% Others
Gujarat, 6.04%

Karnataka, 6.26%
Delhi UP and
Haryana
19%

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 FACT SHEET ON FOREIGN
DIRECT INVESTMENT (FDI)
From AUGUST 1991 to SEPTEMBER 2010
1. Cumulative amount of FDI flows US$
into India 178059
( from April 2000 to September million
2010 )

2. Cumulative amount of FDI inflows Rs. US$

in India 612873 140078
( from April 2000 to September crores million
2010 )

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 FDI INFLOW IN LAST 10 YEARS
Since 1991 to November 2009, the cumulative FDI
inflows to India was Rs 5,47,085 crores or US$ 125,919
million.
FDI IN INDIA (US$ Bn)
40.0
35.0 33.7
30.0
25.0 23
19.7 20
20.0
15.0
10.0 7.6
5 FDI IN INDIA (US$ Bn)
5.0
0.0
E) 05 06 07 08 ov
)
A
G 20 20 20 20 N
il-
ER p r
V A
(A 09(
04 20
-20
0 00
2

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 IMPACT OF FDI INDIA
SINCE 2005

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 On retail sector
Employment

Corner stores

Consumer driven markets

Agriculture

Overall investment

Facts and Benefits

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 Policy Framework
FDI up to 100 % is allowed under the automatic route for cash & carry wholesale trading &
export trading, & FDI up to 51 % is allowed with prior government approval for retail trade in
single-brand products. However, FDI in retailing of goods under multiple brands, even if the
goods are produced by the same manufacturer, is not allowed under the current guidelines.

Available routes for foreign players to enter the retail sector

Strategic Franchisee Cash & carry Manufacturin Distribution Joint Ventures
license route Wholesale g
agreements retail

This route This entry route 100 per cent A company An international International
involves a is widely used FDI is allowed can establish company can firms can enter
foreign company by many in wholesale its set up a into agreement
entering into the international trading which manufacturing distribution with domestic
licensing brands, who opt involves unit in India office in India players & set up
agreement with for the master building a along with and supply base in India .
a domestic franchise route large standalone products to The share of
retailer or and the regional distribution retailing local retailers. MNC is restricted
partnering with franchise route network. outlets. Franchisee to 49% in this
Indian promoter for an entry into outlets can also route.
owned India. be set up by
company. this route.
 on automobile sector

 FDI up to 100 percent, has been permitted under automatic

route to this sector, which has led to a turn over of USD 12
billion in the Indian auto industry and USD 3 billion in the auto
parts industry .

 The manufacturing of automobiles and components are

permitted 100 percent FDI under automatic route

 The automobile industry in India does not belong to the

licensed agreement

 Import of components is allowed without any restrictions and

also encouraged

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 FDI For Automobile Industry
In 2010
 Indian auto industry is likely to see a 10-12 per cent
sales growth in 2010, but the profit margins of auto
manufacturers will come under pressure while
consumers are expected to gain due to increased
price competition in the market : says a report by
global rating firm Fitch.

 With a slew of new players entering the Indian small

car market, segment leaders like Maruti Suzuki India
Ltd (MSIL) and Hyundai Motor India Ltd (HMIL) will
face challenges to their domination

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 IMPACT OF FDI IN AUTOMOBILE
SECTOR
AMOUNT RUPEES IN CRORES (US$ IN MILLION)

SECTOR 2006-07 2007-08 2008-09 2009-10 CUMULATI % OF

(APRIL- (APRIL- (APRIL- (APRIL- VE TOTAL
MARCH) MARCH) MARCH) NOV 09) INFLOWS INFLOWS
(APRIL (IN TERM
2000-NOV OF
09) RUPEES)

AUTOMOBI 1,254 2,697 5,212 4,,499 19,566 4%

LE (276) (675) (1,152) (934) (4,322)
INDUSTRY

HOUSING 2,121 8,749 12,621 10,565 34,348 7%

AND REAL (467) (2,179) (2,801) (2,189) (7,701)
ESTATE
 on telecommunication sector

 Foreign Direct Investment (FDI) appears to be bypassing the telecom sector,

despite India being one of the most attractive and fastest growing telecom
markets. An analysis of the ownership details revealed by nine bidders for the 3G
auctions opening on April 9, reveals that the average FDI holding is just below
40% (39.7%).

Among the nine bidders, Vodafone accounts for the highest FDI at 70.9%, which
includes Vodafone's investments and some of Essar's own foreign investments.

The second largest FDI is in Aircel with its foreign investor — Global
Communication Services Holding (GCSH) owning 64.9%.

 Deccan Digital, which owns 34.9% is, in turn, also held 25% by GCSH. So in that
sense, the exact foreign holding in Aircel is closer to 74% through direct and
indirect routes.

 Etisalat and S Tel. Etisalat Mauritius holds 44.73% in Etisalat India with Delphi
Investments holding 4.27%, totalling 49%.
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 Contd……..
 Bahrain-based BMIC Ltd owns 42.7% of the 49% FDI in S Tel.

 Bharti Airtel and Idea both have roughly 40% FDI. Pestel Ltd is Bharti's
largest foreign investor with a 15.5% holding, followed by foreign FIs,
foreign companies and shareholders who own 17.9% FDI. Idea has
FDI of 40.5% through TMI and P5 Asia Investments.

 Tatas have an FDI of 34.1%, mostly through NTT Docomo, which is the
single largest foreign investor at 26.5%.

 The only bidder that has 100% Indian investment but barely any 2G
operations is Videocon. Reliance Communications also has a very
large chunk of its total investment held by Indian promoters.

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IMPACT OF FDI IN TELECOM SECTOR

AMOUNT RUPEES IN CRORES (US$ IN MILLION)

SECTOR 2006-07 2007-08 2008-09 2009-10 CUMULATI % OF

(APRIL (APRIL- (APRIL- (APRIL- VE TOTAL
- MARCH) MARCH) NOV 09) INFLOWS INFLOWS
MARC (APRIL 2000- (IN TERM
H) NOV 09) OF
RUPEES)
TELECOM 2,155 5,103 11,727 10,811 39,179 8%
(478) (1,261) (2,558) (2,223) (8,600)
 on real estate
 The Government of India in March 2005 amended existing norms to
allow 100 per cent FDI in the construction business. for wholly
owned subsidiaries - US$ 10 million

 Minimum land area for development by foreign investors was

lowered from the earlier floor of 100 acres to 25 acres has thrown
open the lucrative parts of the Indian realty market to global
investors.

 The FDI inflow in automobile sector has increased from USD 2,179
million to 2,801 million in FY ’09 over FY ’08.

 Investors can exit earlier with prior approval from Foreign Investment
Promotion Board (FIPB)
 IMPACT OF FDI POLICY IN REAL
ESTATE
 With changes in the government policy on FDI, all real estate
sectors, residential, commercial and retail are currently witnessing
huge growth in demand

 It has also encouraged several large financial firms and private

equity funds to launch exclusive funds targeting the Indian real
estate sector

 Real estate industry research has also thrown light on investment

opportunities in the commercial office segment in India

 The demand for office space is expected to increase significantly in

the next few years, primarily driven by the IT and ITES industry that
requires an projected office space of more than 367 million sq ft till
2012-13
 On tourism
 Inclusion of tourism in the concurrent list of the Constitution.

 NRI investment up to 100% allowed.

 Automatic approval for Technology agreements in the hotel

industry.

 Concession rates on customs duty of 25% for goods.

 50% of profits are exempt from income tax.

 In 2002, GoI announced a New Tourism Policy to give boost to

the tourism sector.
 IMPACT OF FDI IN TOURISM SECTOR

 Tourism to increase by 15% to 20% over the next 5 years.

 GoI is allowing 100% FDI in Hotels and Tourism through

the automatic route.

 Investment opportunity of about $8-10 billion in the next 5

years.
 India has attracted the FDI for a volume of 660.87 million

US $ - 1.46 percent of the total FDI inflow

 Industry is growing at a rate of 15% annually.

 The compounded growth in tourist inflow from FY96-FY05 has

been 8.2%, while from FY00-FY05, growth stands at 9.1% per
annum.

 The five star hotel segments have grown the fastest during the
last few years at a CAGR of 12%.

 Many foreign companies have already tied up with prominent

Indian companies for setting up new hotels, motels and
holiday resorts.
 Future prospects !!!!

37
 Retail Sector

 Bharti Wal-Mart plans to open 15 cash-and-carry stores

across India by 2011.

 Wal-Mart has just 51% stake holder in Bharti Wal-Mart

venture.

 Wal-Mart is eager to make a direct entry in India with

100% FDI.

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 Infrastructure Sector
 In the next five years planned infrastructure
investment (USD 384bn) in India in some key sectors
are (at current prices):

subsectors in Infrastucture (amounts in billion dollars)

250

200

150
subsectors in Infrastucture (amounts in
billion dollars
100

50

0
s n n rts s r
ay tio io ay om we
hw a ga
t Po li w le
c o
g vi i Te
P
Hi l A Irr Ra
vi
Ci
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 Telecom Sector
 The Indian Telecommunications network with $621 million
connections (as on March 2010) is the third largest in the
world.

 The sector is growing at a speed of 45% during the recent

years.

 Even then the average FDI holding is just below 40%

(39.7%)

 100% Foreign Direct Investment (FDI) is allowed through

automatic route for manufacturing of telecom equipments

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 Automobile Sector
 The automobile industry in India is growing by 18 percent per
year
 The production level of the automobile sector has increased
from 2 million in 1991 to 13.7 million in 2010 where 100%
FDI is allowed.

Opportunities of FDI in the Automobile Sector in India

 Establishing Engineering Centres, R & D departments.
 Two Wheeler Segment
 Exports
 Heavy truck Segment
 Passenger Car Segment
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 Related News Articles in the Economic Times

 India should open retail to FDI.

 Global crisis made foreign firms to look to India.
 FDI inflows weakened in Oct.
 FDI in developing countries to rise 17% in 2010.
 New FDI norms could queer foreign VC funds’ India
Investment Plans.
 Jyotirao Scindia: New policy on FDI in multi-brand
retail soon.

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 BIBLIOGRAPHY

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 THANK YOU

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