Fdi in India (2)

8/3/2019 Fdi in India (2)

http://slidepdf.com/reader/full/fdi-in-india-2 1/33

Group 1

Aditya Malpani Ajinkya Patil

Vasav Joshi

Ashwin Singh Chadha

Ashish Bhat



y FDI is a type of investment that involves the injection of foreign funds into an enterprise that operates in adifferent country of origin from the investor.

y Capital inflows from abroad that invest in the productioncapacity of the economy

y Level of ownership should be greater than or equal to 10%of ordinary shares.

y Involves participation in management, joint-venture,transfer of technology and expertise



y FDI is a non-debt creating, non-volatile investment andreturns depends on performance of the projects

financed

y The FDI relationship consists of a parent enterprise in itshome country and a foreign affiliate in host nation

which together form a multinational corporation(MNC).

y In order to qualify as FDI the investment must affordthe parent enterprise control over its foreign affiliate.

y The control in this case as owning 10% or more of theordinary shares or voting power



For Host Country:y Source of Economic development

y F

acilitatesI

nternational trade integration

y Transfer of knowledge, skills and technology

y Source of Foreign Exchange

y Generates employment opportunities

y Increased Competitive business environment



For Home Country Organization:

y Gain a foothold in a new geographic market.

y Increase a firms global competitiveness andpositioning.

y Fill gaps in a companys product lines in a globalindustry.

y Reduce costs in areas such as R&D, production, anddistribution.





y East India Company(British and Dutch) were the firstforeigners who built assets in India.

y Before Independence major amount of investments camethrough British Cos.

y Our First PM considered FDI as necessary to supplementdomestic capital, secure scientific, technical, and industrial

knowledge and capital equipment

y Industrial policy 1965 allowed MNCs to venture throughtechnical collaboration



y Until the liberalization in 1991, India was largely andintentionally isolated from the world markets, to protect itsfledgling economy and to achieve self-reliance

y FDI averaged only around $200M annually between 1985 and1991, a large percentage of which came from foreign aid,commercial borrowing and deposits of NR Is

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

y Foreign trade was subject to: import tariffs, export taxes,quantitative restrictions

y FDI was restricted by barriers like:upper-limit on equity participationrestrictions on technology transferexport obligations

government approvals



y Negotiations between the government and the foreign

investors used to be public, long and no action used to betaken during the election time for the fear of backlash

y The regulations had seriously undermined the

international competitiveness of Indian

Industry

y It discouraged foreign companies with highly sophisticated technologies from investing in India

y Lack of competition had fostered widespread areas of inefficiency and technology backwardness



y

Economic reforms in 1991 generated strong interest inforeign investors and turning India into one of thefavourite destinations for global FDI flows

y Various Sectors were opened up for FDI investments

y FDI inflows grew at about 200 times since the openingup of the economy to foreign investment

y Increased FDI has stimulated both exports and imports,contributing to rising levels of international trade



y One of the large and fastest growing economy

y India amongst the top 5 investment destinations

y

Availability of cost effective skilled labour

y Natural resources are available abundantly

y

Stable Democratic, Political and economic environment

y Developed and well regulated banking system

y Well established legal and judiciary system



Foreign direct investments in India are approvedthrough two routes:

y Automatic approval by RBI

y

TheFI

PB (Govt. Approval)



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

y

No need of Prior ApprovalF

romFI

PB,RBI

,GOI

.

y The investors are only required to notify the RegionalOffice concerned of the RBI within 30 days of receipt of inward remittances.

y 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.



y FDI in activities not covered under the automaticroute require prior government approval.

y Approvals of all such proposals includingcomposite proposals involving foreigninvestment/foreign technical collaboration isgranted on the recommendations of FIPB (ForeignInvestment Promotion Board).



y Application for all FDI cases, except NR I investments and100% EOUs, should be submitted to the FIPB Unit,DEA,

Ministry of Finance.

y Application for NR I and 100% EOU cases should bepresented to SI A in Department of Industrial Policy andPromotion (DIPP).

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

applications carrying all relevant details are alsoaccepted.

y No fee is payable.



y 1991- Foreign Investment Promotion Board(FIPB)

y 1996- Foreign Investment Promotion Council(FIPC)

y 1999- Foreign Investment Implementation Authority(FII A)

y 2004- Investment Commission

y Secretariat for Industrial Assistance (SI A)



y Special Economic Zones(SEZ)

y Export Oriented Units(EOU)

y Electronic Hardware Technological Parks(EHTPU)

y

Software Technological Park Units(STPU)



y Hotel & Tourism :100% FDI is permissible in the sector through the automaticroute

y Non-Banking Financial Companies(NBFC):49% FDI is allowed from all sources through the automaticroute with different minimum capitalization norms defined

y Insurance Sector:FDI up to 26% allowed through automatic route but licensefrom the Insurance Regulatory & Development Authority (IR D A) has to be obtained. Proposal pending to increase thislimit to 49%



y 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%.

y Power:Up to 100% FDI allowed in projects relating to electricity

generation, transmission and distribution, other thanatomic reactor power plants. There is no limit on the projectcost and quantum of foreign direct investment.

y Trading: Wholesale / cash & carry trading, Trading for exports - Automatic route - 100% . Trading of items sourced fromsmall scale sector - 100% with Government approval. SingleBrand product retailing - 100% with Government

approval



y Infrastructure:Upto 100% FDI allowed in projects relating to transport systems,ports and harbors, bridges, etc.

y Drugs & Pharmaceuticals :FDI up to 100% is permitted on the automatic route for manufactureof drugs and pharmaceutical, provided the activity does not attract

compulsory licensing or involve use of recombinant DNA technology, and specific cell / tissue targeted formulations.

y Petroleum:

Petroleum and natural gas sector, other than refining and includingmarket study and formulation; setting up infrastructure formarketing - Automatic up to 100%.

For petroleum refining activity 100% FDI is permitted in IndianPrivate Companies under automatic route and up to 26% FDI is

permitted in Public SectorU

ndertakings with Government approval



y Private Sector Banking:Foreign Investment up to 74% is permitted from all sourcesunder the automatic route subject to guidelines for setting up

of branches/subsidiaries of foreign banks issued by RBI fromtime to time.

Print Media:

FDI upto 100% in publishing/printing scientific & technicalmagazines, periodicals & journals. FDI upto 26% inpublishing news papers and periodicals dealing in news andcurrent 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 FMradio up to 20% under Government approval route.



y Arms and ammunition

y Atomic Energy

y Railway Transport

y Coal and lignite



S.No. Sector Amount FDI inflows% of total

FDIin Rs. Cr

In US$million

1SERVICES SECTOR 1,36,638.66 30,562.30 20.37

2TELECOMMUNICATIONS 56,909.41 12,518.99 8.353COMPUTER S/W & H/W 48,455.23 10,878.91 7.25

4HOUSING & REAL ESTATE(Multiplex,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

FDIin Rs. Cr. in US $ million

Mauritius 2,74,382.25 61,201.24 40.8Singapore 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



y Domestic players get dominated

y Technological Dependence on Foreign Technology Sources.

y Disturbance of Domestic Economic Plans in favour of FDI-Directed Activities.

y Dominant western powers try for political influence

y Cultural Change Created by Ethnocentric Staffing TheInfusion of Foreign Culture , and Foreign BusinessPractices



y FDI has evolved from the shadows of shallowunderstanding to a proud show of force

y FDI shows a gradual increase and has become a staplefor success for India

y Missing Link : Good Industrial reforms Not so good

Infrastructural reforms



y Pepsico tried to enter the potentially large beverages andprocessed food market, India, twice in 1985 as its 1st proposalgot rejected by Govt. of India

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

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

y There were numerous parliamentary debates, different

review committees, even allegations of Pepsico-CI A nexus

y Indian govt. opposed foreign investment in areas where Indialacked expertise. Pepsico continued to negotiate.



y In 1988, GOI finally gave conditional approval by limitingPepsico ownership to 40%, export obligations, etc.

y In 1990, GOI announced to reexamine the agreement on whichUS govt. threatened to impose trade restrictions onIndia for its negative FDI regulations

y US backed out as Pepsico lobbied for India, thus gaininggoodwill through tax sops here.

y Thus Pepsico gained the early entrant advantage in theIndian beverages and processed food market through hardnegotiations.



y POSCO signed an MoU with the Orissa government on June 22, 2005

y 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.

y Largest estimated FDI inflow at one go - $12 billionUSD (Rs.52,000crores)

y Numerous groups that opposed the deal POSCO Pratirodh SangramSamiti (PPSS,Anti-POSCO Mobilization Committee), the Nav NirmanSamiti (NewDevelopment Committee),RashtriyaYuva Sangathan

(National Youth Collective)

y States use of paramilitary forces and State police aggravated theprotestors at Balitutha.



y More than five years later, and after the MoU expired in June 2010

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

plant.

y Forest Rights Act passed in 2006 applicable.y Conditional clearance granted in Feb 2011, under Forests

Right Act 2006

y Government seeks status report after violence reported inDec2011 and has not renewed the MoU



y FDI has come at a very heavy price. In a detailedreview of the highly controversial Enron Power project,Sucheta Dalal exposed the Maharashtra Government'slies and obfuscations in this regard. She pointed outhow the Mahrashtra State Electricity Board (MSEB) was paying roughly 5 Rs. a unit to Enron, but hadreduced 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 waseffectively subsidizing the Enron Power Co.



y

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



Documents

Fdi in India (2)