Group – 1

Aditya Malpani
Ajinkya Patil
Vasav Joshi
Ashwin Singh Chadha
Ashish Bhat
 FDI is a type of investment that involves the injection of
foreign funds into an enterprise that operates in a
different country of origin from the investor.

 Capital inflows from abroad that invest in the production

capacity of the economy

 Level of ownership should be greater than or equal to 10%

of ordinary shares.

 Involves participation in management, joint-venture,

transfer of technology and expertise
 FDI is a non-debt creating, non-volatile investment and
returns depends on performance of the projects
financed

 The FDI relationship consists of a parent enterprise in its

home country and a foreign affiliate in host nation
which together form a multinational corporation
(MNC).

 In order to qualify as FDI the investment must afford

the parent enterprise control over its foreign affiliate.

 The control in this case as owning 10% or more of the

ordinary shares or voting power
For Host Country:
 Source of Economic development

 Facilitates International trade integration

 Transfer of knowledge, skills and technology

 Source of Foreign Exchange

 Generates employment opportunities

 Increased Competitive business environment

For Home Country Organization:

 Gain a foothold in a new geographic market.

 Increase a firm’s global competitiveness and

positioning.

 Fill gaps in a company’s product lines in a global

industry.

 Reduce costs in areas such as R&D, production, and

distribution.
 East India Company(British and Dutch) were the first
foreigners who built assets in India.

 Before Independence major amount of investments came

through British Cos.

 Our First PM considered FDI as “necessary” to supplement

domestic capital, secure scientific, technical, and industrial
knowledge and capital equipment

 Industrial policy 1965 allowed MNCs to venture through

technical collaboration
 Until the liberalization in 1991, India was largely and
intentionally isolated from the world markets, “to protect its
fledgling economy and to achieve self-reliance”

 FDI averaged only around $200M annually between 1985 and

1991, a large percentage of which came from foreign aid,
commercial borrowing and deposits of NRIs

 Any foreign investment had a lot of political sensitivity to it

 Foreign trade was subject to: import tariffs, export taxes,

quantitative restrictions

 FDI was restricted by barriers like:

upper-limit on equity participation
restrictions on technology transfer
export obligations
government approvals
 Negotiations between the government and the foreign
investors used to be public, long and no action used to be
taken during the election time for the fear of backlash

 The regulations had seriously undermined the

international competitiveness of Indian Industry

 It discouraged foreign companies with highly

sophisticated technologies from investing in India

 Lack of competition had fostered widespread areas of

inefficiency and technology backwardness
 Economic reforms in 1991 generated strong interest in
foreign investors and turning India into one of the
favourite destinations for global FDI flows

 Various Sectors were opened up for FDI investments

 FDI inflows grew at about 200 times since the opening

up of the economy to foreign investment

 Increased FDI has stimulated both exports and imports,

contributing to rising levels of international trade
 One of the large and fastest growing economy

 India amongst the top 5 investment destinations

 Availability of cost effective skilled labour

 Natural resources are available abundantly

 Stable Democratic, Political and economic environment

 Developed and well regulated banking system

 Well established legal and judiciary system

Foreign direct investments in India are approved
through two routes:

 Automatic approval by RBI

 The FIPB (Govt. Approval)

 FDI Policy permits FDI up to 100 % in most of the
sectors under Automatic route.

 No need of Prior Approval From FIPB,RBI,GOI.

 The investors are only required to notify the Regional

Office concerned of the RBI within 30 days of receipt of
inward remittances.

 File the required documents along with form FC-GPR

with that Regional office within 30 days of issue of
shares to the non-resident investors.
 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 FIPB (Foreign
Investment Promotion Board).
 Application for all FDI cases, except NRI investments and
100% EOUs, should be submitted to the FIPB Unit,DEA,
Ministry of Finance.

 Application for NRI and 100% EOU cases should be

presented to SIA in Department of Industrial Policy and
Promotion (DIPP).

 Application can be made in Form FC-IL. Plain paper

applications carrying all relevant details are also
accepted.

 No fee is payable.
 1991- Foreign Investment Promotion Board(FIPB)

 1996- Foreign Investment Promotion Council(FIPC)

 1999- Foreign Investment Implementation

Authority(FIIA)

 2004- Investment Commission

 Secretariat for Industrial Assistance (SIA)

 Special Economic Zones(SEZ)

 Export Oriented Units(EOU)

 Electronic Hardware Technological Parks(EHTPU)

 Software Technological Park Units(STPU)

 Hotel & Tourism :
100% FDI is permissible in the sector through the automatic
route

 Non-Banking Financial Companies(NBFC):

49% FDI is allowed from all sources through the automatic
route with different minimum capitalization norms defined

 Insurance Sector:
FDI up to 26% allowed through automatic route but license
from the Insurance Regulatory & Development Authority
(IRDA) has to be obtained. Proposal pending to increase this
limit to 49%
 Telecommunication:
FDI in various Telecomm services allowed through
Automatic route. FIPB route beyond 49% but up to 74%.
Manufacture of telecom equipment - Automatic up to 100%.

 Power:
Up to 100% FDI allowed in projects relating to electricity
generation, transmission and distribution, other than
atomic reactor power plants. There is no limit on the project
cost and quantum of foreign direct investment.

 Trading:
Wholesale / cash & carry trading, Trading for exports -
Automatic route - 100% . Trading of items sourced from
small scale sector - 100% with Government approval. Single
Brand product retailing - 100% with Government
approval
 Infrastructure:
Upto 100% FDI allowed in projects relating to transport systems,
ports and harbors, bridges, etc.

 Drugs & Pharmaceuticals :

FDI up to 100% is permitted on the automatic route for manufacture
of drugs and pharmaceutical, provided the activity does not attract
compulsory licensing or involve use of recombinant DNA
technology, and specific cell / tissue targeted formulations.

 Petroleum:
Petroleum and natural gas sector, other than refining and including
market study and formulation; setting up infrastructure for
marketing - Automatic up to 100%.
For petroleum refining activity 100% FDI is permitted in Indian
Private Companies under automatic route and up to 26% FDI is
permitted in Public Sector Undertakings with Government approval
 Private Sector Banking:
Foreign Investment up to 74% is permitted from all sources
under the automatic route subject to guidelines for setting up
of branches/subsidiaries of foreign banks issued by RBI from
time to time.

• Print Media:
FDI upto 100% in publishing/printing scientific & technical
magazines, periodicals & journals. FDI upto 26% in
publishing news papers and periodicals dealing in news and
current affairs.

• Broadcasting:
FDI permitted for setting up hardware facilities such as up-
linking, HUB, Cable network, DTH services, etc. up to 49%
under Government approval route. FDI permitted in FM
radio up to 20% under Government approval route.
 Arms and ammunition

 Atomic Energy

 Railway Transport

 Coal and lignite

S.No. Sector Amount FDI inflows
% of total
In US FDI
in Rs. Cr $million
1SERVICES SECTOR 1,36,638.66 30,562.30 20.37
2TELECOMMUNICATIONS 56,909.41 12,518.99 8.35
3COMPUTER S/W & H/W 48,455.23 10,878.91 7.25
HOUSING & REAL ESTATE(Multiplex,
4 Commercial complex, townships, etc.) 48,404.60 10,852.64 7.23
5CONSTRUCTION ACTIVITIES 43,505.02 9,711.21 6.47
6POWER 31,352.34 6,932.06 4.62
7AUTOMOBILE INDUSTRY 28,986.77 6,398.29 4.27
8METALLURGICAL INDUSTRIES 25,162.41 5,691.61 3.79
9DRUGS & PHARMACEUTICALS 22,320.99 4,985.30 3.32
10PETROLEUM & NATURAL GAS 14,306.96 3,280.72 2.19
 Country Amount inflow in India
% of total
in Rs. Cr. in US $ million FDI

Mauritius 2,74,382.25 61,201.24 40.8

Singapore 67,755.58 15,202.81 10.13
USA 45,295.04 10,053.33 6.7
UK 40,959.32 9,202.34 6.13
Japan 32,317.97 7,124.56 4.75
Netherlands 29,718.28 6,598.90 4.4
Cyprus 25,839.91 5,646.84 3.76
Germany 19,479.31 4,353.34 2.9
 Domestic players get dominated

 Technological Dependence on Foreign Technology

Sources.

 Disturbance of Domestic Economic Plans in favour of FDI-

Directed Activities.

 Dominant western powers try for political influence

 “Cultural Change” Created by “Ethnocentric Staffing” The

Infusion of Foreign Culture , and Foreign Business
Practices
 FDI has evolved from the shadows of shallow
understanding to a proud show of force

 FDI shows a gradual increase and has become a staple

for success for India

 Missing Link : Good Industrial reforms – Not so good

Infrastructural reforms
 Pepsico tried to enter the potentially large beverages and
processed food market, India, twice in 1985 as its 1st proposal
got rejected by Govt. of India

 In its 2nd attempt, it offered a complex proposal consisting of

multiple partnership structure, import – export guarantees,
new technology, employment creation, etc.

 There were numerous parliamentary debates, different

review committees, even allegations of Pepsico-CIA nexus

 Indian govt. opposed foreign investment in areas where India

lacked expertise. Pepsico continued to negotiate.
 In 1988, GOI finally gave conditional approval by limiting
Pepsico ownership to 40%, export obligations, etc.

 In 1990, GOI announced to reexamine the agreement on

which US govt. threatened to impose trade restrictions on
India for its negative FDI regulations

 US backed out as Pepsico lobbied for India, thus gaining

goodwill through tax sops here.

 Thus Pepsico gained the early entrant advantage in the

Indian beverages and processed food market through hard
negotiations.
 POSCO signed an MoU with the Orissa government on June 22, 2005

 MoU was to build a steel plant with a capacity of 12 million tons per
year, along with a captive port and iron ore mines.

 Largest estimated FDI inflow at one go - $12 billion USD (Rs.52,000

crores)

 Numerous groups that opposed the deal POSCO Pratirodh Sangram

Samiti (PPSS,Anti‐POSCO Mobilization Committee), the Nav Nirman
Samiti (New Development Committee),Rashtriya Yuva Sangathan
(National Youth Collective)

 States use of paramilitary forces and State police aggravated the

protestors at Balitutha.
 More than five years later, and after the MoU expired in
June 2010

 Reapplication of SEZ status for both port (Paradip) and the

plant.

 Forest Rights Act passed in 2006 applicable.

 Conditional clearance granted in Feb 2011, under Forests
Right Act 2006

 Government seeks status report after violence reported in

Dec2011 and has not renewed the MoU
 FDI has come at a very heavy price. In a detailed
review of the highly controversial Enron Power project,
Sucheta Dalal exposed the Maharashtra Government's
lies and obfuscations in this regard. She pointed out
how the Mahrashtra State Electricity Board (MSEB)
was paying roughly 5 Rs. a unit to Enron, but had
reduced it's purchases from the Tata Electric Company
which was selling power at under 2 Rs. a unit. Since the
MSEB was selling power at 3 Rs. a unit, it was
effectively subsidizing the Enron Power Co.

http://dipp.nic.in/fdi_statistics/india_fdi_index.htm
http://dipp.nic.in/manual/manual_0403.pdf
http://www.indiafdiwatch.org/fileadmin/India_site/10-FDI-Retail-
more-bad.pdf
http://www.madaan.com/sectors.html ( sector specific FDI in India )
http://www.ibef.org/india/economy/fdi.aspx
http://www.economywatch.com/foreign-direct-investment/fdi-india/
http://www.livemint.com/2011/11/24205234/Reforms-restart-with-FDI-
in-re.html