Foreign Direct Investment

40,544 Views

Investment, Foreign investment, Foreign direct investment, Need of foreign investment, Determinants of foreign investment, Routs of FDI, Modes of FDI, Government policies, Liberalization of FDI limits in India, Prohibited FDI sectors Impact of FDI on Indian economy FDI benefits FDI adverse effects

Rohit G / Indore

5 years of teaching experience

Qualification: MBA/PGDM (WBUT - 2015)

Teaches: Accountancy, Commerce Subjects, Economics, Mathematics, Bank Clerical, IBPS, SBI Exam, SSC Exams, BBA Entrance, BBA Subjects, Management Subjects

  1. Foreign Direct Inves ntB (FDI)
  2. POINTS TO BE DISCUSSED:- Investment Foreign investment Foreign direct investment Need of foreign investment Determinants of foreign investment Routs of FDI Modes of FDI Government policies Liberalization of FDI limits in India Prohibited FDI sectors Impact of FDI on Indian economy Categories and segmentation FDI benefits FDI adverse effects
  3. AN INVESTMENT The commitment of money or capital to purchase financial instruments or assets in order to gain profitable returns.
  4. AN INVESTMENT BECOMES FOREIGN INVESTMENT WHEN.. Investment done by citizens and government of one country (home country) invest in industries of another country (host country). Foreign through Foreign Direct Investments Foreign Institutional Investors
  5. FOREIGN DIRECT INVESTMENT • Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. • Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds.
  6. • Broadly, foreign direct investment includes :- 1) Mergers and Acquisitions. 2) Building new facilities. 3) Reinvesting profits earned from overseas operations and intra company loans"
  7. NEED OF FOREIGN INVESTMENT Raising the level of investment. • • Up gradation of technology. Exploitation of natural resources. • Development of basic economic infrastructure. • Improvement in exports competitiveness. • Improvement in the balance of payments position. • Benefit to customer. • Revenue to government. •
  8. DETERMINANTS OF FOREIGN INVESTMENT • Political stability. • Legal and regulatory framework. • Size of market. • Prices and exchange rate. • Access to basic input.
  9. FDI ROUTES Automatic Route No permission required Government Approval / License required.
  10. MODES OF FDI Mergers and Acquisitions , Horizontal FDI , Vertical FDI. Target Motive *BackwardVertical FDI*Forward Vertical FDI Resource-Seeking Market-Seeking Efficiency-Seeking Strategic-Asset-Seeking
  11. Horizontal FDI:- 1) Arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI. 2) Horizontal FDI decreases international trade as the product of them is usually aimed at host country; the two other types generally act as a stimulus for it.
  12. Platform FDI:- Foreign direct investment from a source country into a destination country for the purpose of exporting to a third country. Vertical FDI:- Takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country.
  13. Greenfield investment: It is the direct investment in new facilities or the expansion of existing facilities. It is the principal mode of investing in developing countries like India. Mergers and Acquisition: It occurs when a transfer of existing assets from local firms takes place.
  14. GOVERNMENT POLICIES Government policies regarding foreign investment can be discussed under the following heads • Pre-liberalization policies. • Liberalization policies. • New policies relations.
  15. LIBERALIZATION OF FOREIGN DIRECT INVESTMENT LIMITS IN INDIA • FDI in India is subject to certain Rules and Regulations and is subject to predefined limits in various sectors which range from 20% to 100%. • There are also some sectors in which FDI is prohibited. • FDI Limits are reviewed and modified by the government from time to time.
  16. • To attract more foreign investment in India, the Union Government constituted a committee named, Arvind Mayaram Committee headed by the Economic Affairs Secretary. • The Government approved the recommendations given by the Arvind Mayaram Committee to increase FDI limits in 12 sectors out of the proposed 20 sectors, including crucial ones such as defence and telecom in July 2013.
  17. Some of the important changes made in the Existing FDI Limits are provided below: 1) Sector/activity- Defence Before proposal- After proposal- 2) Sector/activity- Before proposal- After proposal- 1) 0/0 of FDI/Equity- 2) Entry code- Government route 1) % of FDI/Equity- no change 2) Entry code- CCS Insurance 1) 0/0 of FDI/Equity- 2) Entry code- Automatic route 1) % of FDI/Equity- 49% 2) Entry code- Automatic route
  18. 3) Sector/activity- Before proposal- After proposal- 4) Sector/activity- Before proposal- After proposal- 5) Sector/activity- Before proposal- After proposal- Telecom 1) % of FDI/Equity- 2) Entry code- Automatic up to 49% and Government from 1) % of FDI/Equity-1000/0 2) Entry code- Automatic up to 49% and Government from Tea plantation 1) % of FDI/Equity- 100% 2) Entry code- Government route 1) % of FDI/Equity- 100% 2) Entry code- Automatic up to 49% Government 49% to 100% Asset reconstruction company 1) % of FDI/Equity-74% of paid-up capital of ARC (FDI+FII) 2) Entry code-Government Route 1) % of FDI/Equity- 100% 2) Entry code-Automatic up to 49% Government 49% to 100%
  19. 6) Sector/activity- Petroleum & Natural Gas Before proposal- 1) % of FDI/Equity- 49% 2) Entry code- Government Route After proposal- 1) % of FDI/Equity- 49% 2) Entry code-Automatic Route 7) Sector/activity- Commodity Exchanges Before proposal- 1) 0/0 of FDI/Equity-490/0 (FDI & Fll) + [Investment by After proposal- 8) Sector/activity- Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% and Investment under FDI Scheme limited to 26% ] 2) Entry code- Government Route 1) 0/0 of FDI/Equity- 2) Entry code- Automatic Route Power Exchanges Before 8) Sector/activity- Power Exchanges Before proposal- 1) 0/0 of FDI/Equity-490/0 (FDI &FII) FDI limit of 26 per cent After proposal- and an FII limit of 23 per cent of the paid-up capital 2) Entry code- Government Route 1) % of FDI/Equity- 49% 2) Entry code- Automatic Route
  20. 9) Sector/activity- Before proposal- After proposal- 10) Sector/activity- Before proposal- After proposal- 11) Sector/activity- Before proposal- After proposal- Stock Exchanges/ Clearing Corporations 1) 0/0 of FDI/Equity- (FDI &FII) FDI limit of 26 0/0 and an FII limit of 23 per cent of the paid-up capital 2) Entry code- Government Route 1) % of FDI/Equity- 49% 2) Entry code-Automatic Route Credit Information Companies 1) 0/0 of FDI/Equity- (FDI & Fll) 2) Entry code- Government Route 1) 0/0 of FDI/Equity- 2) Entry code-Automatic Route Courier Services 1) 0/0 of FDI/Equity-1000/0 2) Entry code- Government Route 1) 0/0 of FDI/Equity- 100% 2) Entry code-Automatic Route
  21. 12) Sector/activity- Single Brand product retail trading Before proposal- 1) % of FDI/Equity-100% 2) Entry code- Government Route After proposal- 1) 0/0 of FDI/Equity- 100% 2) Entry code-Automatic up to 49% Government route beyond 49% and up to 100%
  22. FDI PROHIBITED IN:- Gambling and Betting or Lottery Business, Business of chit fund, Nidhi Company, Housing and Real Estate business, Trading in Transferable Development Rights(TDRs), Retail Trading, Atomic Energy Agricultural or plantation activities or Agriculture (excluding Floriculture, Horticulture, Development of Seeds,
  23. Arms and ammunition. Atomic Energy. Railway Transport. • Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc. • Animal Husbandry, Pisciculture and Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and Plantations(other than Tea plantations).
  24. IMPACT OF FDI ON INDIAN ECONOMY Investment provides the base and pre-requisite for economic growth and development. Apart from a nation's foreign exchange reserves, exports, government's revenue, financial position, available supply of domestic savings, magnitude and quality of foreign investment are necessary for the well being of a country.
  25. FDI is the safest type of international capital flows out of all the available sources of external finance available. FDI provides a win — win situation to the host and the home countries. Both countries are directly interested in inviting FDI because they benefit a lot from such type of investment. FDI can help to raise the output, production and export at the sectoral level of the Indian economy
  26. It is advisable to open up the export oriented sectors and higher growth of economy could be achieved through the growth of these sectors. FDI affects the GDP of a country directly and hence they are positively correlated.
  27. MAJOR INDIAN RETAILERS : CATEGORIES Format Hypermarkets Cash and Carry Departmental stores Supermarkets Shop-in-shop Specialty stores Category killers Discount stores Convenience stores Description Offering basket of product Bulk-buying requirement Large layout, Wide merchandise mix Household product as well as food as integral part of the service Shops located in shopping malls Focus on individual product type Particular segment Branded product at discounted prices Small Retail stores Retailers Spencer's, Big bazaar Bharti-wall-mart Lifestyle , Globus Apna bazaar , food bazaar Navras ( big bazaar) Brand Factory The LOFT Subhiksha, Levi's outlet In and out
  28. SEGMENTA Retail Segment Food and grocery Clothing, textile and fashion Jewellery Catering services Consumer durable pharmaceuticals Entertainment Furnishing, utensils Mobile handsets Percentage holding in sector 5% 4% 4% 3% 3% 2% Major retailers Reliance fresh, Café brio, food bazaar Westside, shoppers stop, glob us Tanishq IRCTC Viveks, Vijay sales, Croma Piramal group Bowling co., Hometown, Tangent Concept The mobile store,
  29. FDI BENEFITS Economic Growth Linkages and spillover to domestic firms Technology diffusion and knowledge transfer Trade Employment and skill levels
  30. ADVERSE EFFECTS OF FDI • Foreign enterprises obstruct the growth of indigenous industrial entrepreneurship. When foreign investments compete with home investments, profits in domestic industries fall, leading to fall in domestic savings. • Foreign firms may influence political decisions in developing countries. • The cost of foreign capital for the host country tends to be very high. • Contribution of foreign firms to public revenue through corporate taxes is comparatively less.
  31. . YOU

Need a Tutor or Coaching Class?

Post an enquiry and get instant responses from qualified and experienced tutors.