Why India?

• Liberal, largest democracy, Political Stability.

• Second largest emerging market (US$ 2.4 trillion).
• Skilled and competitive labors force.
• Highest rates of return on investment.
• One hundred of the Fortune 500 have R & D
facilities in India.
• Second largest group of software developers after
the U.S.
• Lists 6,500 companies on the Bombay Stock
Exchange (only the NYSE has more).
 • World's fourth largest economy & second largest
pharmaceutical industr y.
• Growth over the past few years averaging 8% has a middle
class estimated at 300 million out of a total population of 1
billion.
• Destination for business process outsourcing, Knowledge
processing etc.
• Second largest English-speaking, scientific, technical and
executive manpower Low costs & Tax exemptions in SEZ.
• Tax incentives for IT , business process outsourcing and
KPO companies.

Why India (cont.)

Risk due to Sovereign
Terrorism Risks

INVESTMENT
RISK IN INDIA
Commercial Political
Risks Risks
 Horizontal FDI
Vertical FDI
Greenfield Investment
Direct investment in new facilities/ Industry provides inputs for or sells Investment in the same industry
expansion of existing facilities. output from a firm’s domestic abroad as a firm operates in at
production processes. home.
Objective to create new production
capacity and jobs and to transfer
technology.
Profits from production do not feed
back into local economy but to the
MNC’s
local economy.
 Financial incentives (Funds from local Government)

Fiscal incentives (Exemption from import duties)

Indirect incentives (Provides land and labour)

Factors Affecting Political stability

FDI
Market potential & accessibility

Large economy

Market size
 In 1991 the government allowed FDI upto
51% wherein automatic permission was
granted in high technology and high
investment priority industries.

Liberalization in The limit was raised from 51% to 74% and

subsequently to 100%.
FDI

The 1991 policy invited foreign equity

holdings upto 51% by international
trading companies.
 Reforms in 2012

• On 14 September 2012, Government of India allowed FDI in aviation up

to 49%, in the broadcast sector up to 74%, in multi-brand retail up to
51%, in single-brand retail up to 100%.

• The choice of allowing FDI in multi-brand retail up to 51% has been left
to each state. But the Government of India does not allow foreign e-
commerce companies to pick-up 51% stake in multi-brand retail sector in
business-to-consumer space citing regulatory issues, problems in
checking inter-state transactions in e-commerce activities.
• In its supply chain sector, the government of India had already approved
• 100% FDI for developing cold chain.
 FDI Investment Sectors

Prohibited
Activities Arms and Lottery Betting and
ammunition business Gambling
• Atomic energy

Aircraft and Atomic

Coal lignite Mining
warships minerals
FDI • Fully permitted
Activities
•

•
Real state
Mobile Sector
Investment • Cigar and cigarettes of
tobacco
• Automobile
Telecommunication
Sectors
•
• Coal, Roads &
Highways
• Diamond, Gold, Silver ,
Minerals
• Electricity
• Hotel, hospitals
• Retail
• I.T
• Oil & Energy
• Power sector
• Pharmaceuticals &
Chemicals
FDI IN RETAIL
 Low share of organized retailing

FDI in
Retail….WHY Increase in disposable income
and customer aspiration
INDIA?

Increase in expenditure for

luxury items
 FDIin Retail….Benefits
 Generate huge employment

 Increased investment in technology

 The huge tax revenue generated.

 The consumer gains from the wide variety of choices and a more
diversified basket.

 The indirect benefits like better roads, online marketing, expansion of

telecom sector etc. Will give a ‘big push’ to other sectors like agriculture,
small and medium size enterprises.
 FDIin Retail….Drawbacks
 ForeignPlayers would displace the unorganized retailers
because of their superior financial strengths.
 The entry of large global retailers such as Wal-Mart would
kill local shops and millions of jobs.
 Induceunfair trade practices like predatory pricing, in the
absence of proper regulatory guidelines.
 Increase
in real estate prices and marginalize domestic
entrepreneurs
TELECOMMUNICATION
 FDIin telecommunication sector
• FDI inflow from 1991 to 2010 in telecommunication sector amounted to
US$ 131,220 million.
• Third largest sector to attract FDI in India.
• India has 100% FDI allowed in networking components and 74% FDI in
telecommunication services.
GovernmentInitiatives
• FDI in telecom services has been raised to 74%.
• Introduction of unified access licencing for telecom services on a pan-
India basis.

• Foreign telecom companies can bid for 3G spectrum without partnering

with Indian companies
Targetsset by the Government
1. Network expansion
• 800 million connections by the year 2012.
2. Rural telephony
• 200 million rural subscribers by 2012
3. Broadband

• 20 million Broadband connections by 2010.

• Broadband coverage for all secondary & higher secondary schools and
public health care centres by the end of year 2010.
• Broadband coverage for all Grampanchayats by the year 2010
FDIin RealEstate
 FDIin RealEstate
 Second-most favoured destination for FDI in the world
 Norms to allow 100% FDI Mar 2005
 100 acre criterion to 25 acre criterion
 FDIin RealEstate….WhyInvest??
 India produces an estimated 2 million new graduates
 Presence of a large number of Fortune 500
 Real estate investments in India yield huge dividends
FDIINTOURISM
 Tourism
 Raised to $120mn
 Major source of employment
 Third largest earner of foreign exchange
 Private investments through public private partnership
 NeedforFDIinTourism
 Foreign tourist arrivals are expected to grow to 10 million by 2012-14

 Estimated that tourism in India could contribute Rs.8,50,000 crores to the

GDP by 2020
 ReasonsforlowFDI
Multitude of taxes
High Taxes
Highest import duty on imported liquor used in
hotels
Service Tax on Tour Operators
Inland Air Travel Tax
FDIin PowerSector
 Incentives forInvestment in Power Sector
• New Legal Regime: Electricity Act, 2003

• The Act provides for: Multiple Buyer Model, Independent

Regulatory Body, Open Access, Power Trading as an independent
business, delicensing of generation
• 100% FDI Automatic Route in:
• Hydro-electric power plants;
• Coal/lignite based thermal power plants;
• Oil/gas based thermal power plants.
FDIINAGRICULTURE
 Allowed up to
100%

Pilot
programme for
Contributes
delivering
16% to the GDP
subsidy directly
to farmer
 To connect 66,800 habitations
 To construct 1,46,000Km of new rural roads
 To Upgrade and modernize 1,94,000Km of existing
rural roads
 To provide corpus of Rs. 8000 crore RIDF
 PROSofFDI
• It reduces the gap between farm prices and retail prices.

• Gives best management practices from all over the world.

• It makes market intelligent and also provides good
understanding and practical knowledge to he domestic
retailers.
• To achieve expected growth in India GDP: India is targeting
for its GDP to grow by 8 to10 percent per year. This requires
raising the rate of investment as well as generating demand
for the increased goods and services produced.
• Provide an aid to Indian agriculture to become lowest cost
source of farm produce.
• To bring trade balance and to increase liquidity by the way of
foreign exchange reserves .
 CONS OFFDI
• Threats on organized and unorganized retail players
• Replacement of established national brands by the brands of the
retail gains. For e.g Wal-Mart is committed to buying the best
goods at the cheapest prices to give its customers the best value
for money. That is why it sources so heavily from China. 70% of
merchandise in Wal-Mart contains components made in China.
Even though Wal-mart may not continue heavy operations in
china but would continue heavy sourcing from china market to
cater to the world markets at lower prices. Low prices of Chinese
products can easily convince Indian price consciousness mentality.
Acceptance towards Chinese brands can create a direct threat on
Indian established brands providing best quality products with
reasonable prices.