FOREIGN DIRECT INVESTMENTS

PRESENTED BY:
Sonam Rakvi Roll No. 542 SYMMS

MEANING
Foreign direct investment (FDI) refers to long term participation by country A into country B. It usually involves participation in management, joint venture, transfer of technology & expertise There are three types of FDI:
inward foreign direct investments, outward foreign direct investment, "stock of foreign direct investment", which is the cumulative number for a given period.

Types of FDI
By direction
Inward Outward

By Target
Green field investments Horizontal Investments Vertical investments

Methods of FDI
The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods:
by incorporating a wholly owned subsidiary or company by acquiring shares in an associated enterprise Through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise

FDI approval from FIPB for various sectors

Sector Airport Telecommunication Roads, highways, ports Private sector banking Power Insurance Guidelines Up to 100%, above74%-govt permission needed Up to 49% subject to licensing & security requirements Up to 100% Up to 74% Up to 100% Up to 26%

Lottery, gambling & prohibited

Mining Agriculture Advertising & films Coal & lignite Drugs & pharmaceuticals Hotel and tourism Housing and real estate Petroleum

Up to 74%; exploration of gold and other minerals Up to 100% No FDI permitted except tea sector; Up to 100% 100% 100%; coal exploration-74% 100% 100% 100% 100%; 60% for unincorporated JV &51% for JV with NOC

Determinants of FDI
Population Income Human resources Natural resources Cheap labor Infrastructural facilities

Why does India get limited FDI?

Image and attitude Domestic policy Procedures Quality of infrastructure State government level obstacles Delays in legal process

Current issue- FDI in retail

Definition of retail: Sale to ultimate consumer.
Organized retail Unorganized retail

FDI policy in India:

51% in single retail FDI prohibited in multi brand retail Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999.

FDI in retail sector

FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of Single Brand products FDI is not permitted in Multi Brand Retailing in India. The argument: Increase single brand FDI from 51% to 100% Allow FDI in multi brand retail

CONCERNS OF ALLOWING FDI IN RETAIL

Unfair competition and ultimately result in large-scale exit of domestic retailers, leading to large scale displacement of persons employed in the retail sector. Further, as the manufacturing sector has not been growing fast enough, the persons displaced from the retail sector would not be absorbed there. Another concern is that the Indian retail sector, particularly organized retail, is still under-developed and in a nascent stage and that, therefore, it is important that the domestic retail sector is allowed to grow and consolidate first, before opening this sector to foreign investors.

 The entry of large global retailers such as Wal-Mart would kill local shops and millions of jobs, since the unorganized retail sector employs an enormous percentage of Indian population after the agriculture sector; The global retailers would conspire and exercise monopolistic power to raise prices and monopolistic (big buying) power to reduce the prices received by the suppliers; Lastly, it would lead to asymmetrical growth in cities, causing discontent and social tension elsewhere. Hence, both the consumers and the suppliers would lose, while the profit margins of such retail chains would go up.

CONCLUSION
Single brand retail: FDI allowed up to 51%

Multi brand still prohibited looking at the consequences.

FDI boom in INDIA

India is now the third most favoured destination for Foreign Direct Investment (FDI), behind China and the USA FDI in India in 1997-98 was lower at U.S.$ 5,025 million compared to U.S.$ 6,008 million in 1996-97 because of a decline in portfolio investment. Although foreign direct investment (FDI) increased by 18.6 per cent from U.S.$ 2,696 million in 1996-97 to U.S.$ 3,197 million in 1997- 98. Increase in total FDI: 46.8% Rise in foreign equity: 36% Reinvested foreign earnings and other capital: $3.2 billion Total FDI earnings (inward) in Apr-Jan 2005-06: $5.7 billion Total FDI earnings (outward) increase: 2000-01: $757 million 2004-05: $2.4 billion

 there was Rs. 6,30,336 crore FDI equity inflows between the period of August 1991 to January 2011 Top 10 investing FDI investing countries in India are Mauritius, Singapore, United States, UK, Netherlands, Japan, Cyprus, Germany, France and UAE. The crucial test for India is how to move from US$10-12 billion FDI economy to one where investment levels are US$30-40 billion.

Comparison between India and China

Basis of Comparison Total population China 1272 billion India 1033 billion

Savings rate
Labour force Annual GDP Share GDP Share of industry in GDP of agriculture

50 per cent
757 billion US $ 1159 billion in15 per cent

26 per cent
451 billion 478 US $ billion 27 per cent

52 per cent

27 per cent 48 per cent

Share of service sector in33 per cent GDP Education expenditure Female adult literacy 2.3 per cent of GNP 85 per cent

3.2 per cent of GNP 45 per cent

GOVERNMENT MEASURES TO INCREASE FDI

1991 Foreign Investment Promotion Board FIPB 1996 Foreign Investment Promotion Council FIPC 1999 Foreign Investment Implementation Authority FIIA 2004 Investment Commission Project Approval Board (PAB) Licensing Committee (LC) Indian Investment Centre-

conclusion