Download pdf - Fdi & fii

An investment made by a company or entity based in one country, into a company or entity based in another country.

Foreign direct investment is the participation of one country’s resources in another country's business. Many times people and technology are transferred between the two countries. Most foreign direct investment happens between the most developed countries.A foreign direct investor can be a government body, a company, or an individual. China has much foreign direct investment in it from other countries. India was the second most.

Foreign direct investment

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FDI Investment schemes

• Available Financial Institutions :Equity shares , compulsory convertible preference shares &

compulsorily convertible debentures.

• Investors who are not Eligible :citizens & entities of Pakistan.

• Available with Approval of FIPB (AP (DIR) No.22 dt.19/12/2007)

citizens & entities of Bangladesh.


Contribution of FDI inflows into India :

• Singapore : USD 5.98 billion.• Mauritius : USD 4.85 billion.• UK USD : 3.21 billion.• Netherlands : USD 2.27 billion.

According to the Department of Industrial Policy and Promotion (DIPP) data FDI into India grew by 8 percent year-on-year to USD 24.3 billion in 2013-14.

In 2012-13, FDI aggregated at USD 22.4 billion.


COUNTRY WISE INVESTMENT SHARE

singapore

mauritius

uk

netherlands


The highest FDI came in 2013-2014

• Services – USD 2.22 billion

• Automobiles – USD 1.51 billion

• Tele communications – USD 1.3 billion

• Pharmaceuticals – USD 1.27 billion

• Construction development – USD 1.22 billion

The country needs foreign investment to help regain its growth momentum. India’s economic growth slowed to a decade’s low of 4.5 percent in 2012-13.

The country is estimated to require about USD 1 trillion between 2012-13 and 2016-17, the 12th Five-Year Plan period, to fund infrastructure projects.


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services

automobiles

tele communications

pharamaceuticals

construction development

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FDI INVESTMENT SECTORS


Pros & cons of FDI

• Advantages :

Economic growth.

Employment & Skill levels.

Technology & Knowledge transfer.

Trade.

Globalization. Access to International markets.

Share of R&D methods , techniques b/w it’s parent & foreign firms.

• Disadvantages :

There is a chance of leaking/revealing one country’s secrets with the opponent countries.

Not all foreign country’s can accept the cultures & customs of the foreign country’s(unfavorable environmental conditions) .


Prohibited sectors for FDI

• Gambling & Betting

• Lottery Business

• Atomic Energy

• Retail Trading

• Agricultural / plantation activities of Agriculture.

(Excluding Mushrooms , Animal husbandry , Development of seeds….., under services & controlled cond., related to agro & allied sectors ; plantations other than tea).


The term foreign institutional investment denotes all those investors or investment companies that are not located within the territory of the country in which they are investing. These are actually the outsiders in the financial markets of the particular company. Foreign institutional investment is a common term in the financial sector of India. The type of institutions that are involved in the foreign institutional investment are as follows:

Mutual FundsHedge Fundspension FundsInsurance Companies.

Foreign Institutional Investment


Banks

Charitable trusts/societies

Mutual funds

Pensions

Insurance / reinsurance companies

Foundations

Endowments

Investment trusts

University funds

Nominee companies

Trustees

Power of attorney holders………………………………..,.


Eligibility criteria for applicant

• In India it started from September 1992 . In order to trade in Indian equity market needed to register with SEBI as FII.

As per rules & regulations of SEBI eligibility criteria for applicant are as follows:o Applicant must be fit & proper.

o Payment of registration fee of US $.5000.00.

o Applicant should have track record , experience, financial knowledge, professional competence, general reputation of fairness & integrity.

o Applicant should have permission under FEMA ACT - 1999 Provisions from RBI.

o Applicant must appoint a local custodian & enter into contract with him , also appoint a designated bank to route its transactions.


Pros & cons of FIIAdvantages :

• Improve corporate capital structures

• Provide financial innovation

• Enhance competition & efficiency of financial mrkts

• Helps in economic development

• Improve corporate governance

Disadvantages :

• It is in the form of equities & are S.T. in nature

• Creates prblm of inflation

• Fluctuations in FII have impact on stock exchange

• Problematic for small investors

• False representation of economy

• It is of S.T. investment.


Differentiating FDI & FII.

"In order to remove the ambiguity that prevails

on what is Foreign Direct Investment (FDI) and

what is Foreign Institutional Investment (FII), it

is proposed to follow the international practice

and lay down a broad principle that, where an

investor has a stake of 10 percent or less in a

company, it will be treated as FII and, where an

investor has a stake of more than 10 percent, it

will be treated as FDI. A committee will be

constituted to examine the application of the

principle and to work out the details

expeditiously."

